The Web of Debt

Debt is a nasty web that entangles in insidious ways. Although debt has become a way of life in corporate and personal America, destruction and turmoil are often the result of unsuccessful debt management. Borrowing allows for growth and expansion and, carefully managed, can be a tool for financial stability. But more often than not, debt enables the temptation for an organization to grow too fast without counting the cost of tomorrow. Debt can feed the ego of man, inciting the leader to commit to projects, programs, buildings, and property beyond the scope of his/her organization. The means to pay back fades in the light of the vision of new ground to be conquered.

Carefully planned financial loans can enable an organization to move to another level of effectiveness and impact. Solid business plans reflecting long-range budgets, including debt reduction and elimination, can provide the structure needed to avoid the pitfalls of financial calamity. Counting the cost before building the tower is a powerful and direct teaching of Jesus (Luke 14:28-33). Debt may be a way of life in the USA, but careful spending and minimal indebtedness should be the motto of responsible organizations.

An institution, whose balance sheet is rich in assets but weak in liquidity, could be on the brink of financial collapse. If the organization owns property, and buildings, and holes in the ground called building projects, but does not have the cash flow to pay for the people in those buildings, or to cover the expenses of programs and products that it provides to its customers, the organization is in a lot of trouble. From the outside it might look strong, solid, sleek, and attractive, but on the inside it might be dilapidated and rotten. Buildings purchased with debt dollars, annual budgets funded by internal or external borrowing, and a cash flow stream generated by the revenues of borrowed money, are serious indicators of financial problems.

The obvious solution for a property rich - cash poor institution is to sell some of the property. But "right sizing" can be a blow to the ego of the leader as he/she must exercise the appearance of a step backward. To shrink the institution in order to provide for financial stability gives the impression of failure. The realignment of priorities and the downloading of fringe ministries to protect the core of the organization might reveal some mistakes made along the way. Poor judgments in the decision making of encumbering the initial debt may come to light. But, it seems a small price to pay for the health of the overall organization. A nice meal with a smaller piece of the pie, is much more attractive that an empty table with no pie at all.

But, to exercise such a responsible financial position, assumes that assets can be sold. A highly appraised building on a desirable plot of land, is only as valuable as the buyer can afford. A beautiful $500,000 home is only worth $500,000, if you can find a buyer willing to pay $500,000. If the top bid is only $300,000, then what is the true value of that home?

Hard assets on the balance sheet look nice and can be easily used for collateral on a loan, but turning those assets into debt reducing revenue is not as easy as placing an ad in the local paper. Often the assets of an institution are attractive to a limited number of buyers. And in the economic times in which we live, liquidating a hard asset can be a hard task indeed. Sometimes financial survival hinges on the sale of assets. It is in those times that debt raises its ugly head and laughs at the fate of the entangled.

Desperate times call for desperate prayer.