Anyone who has started a business, big or small, can tell you that the process is daunting.
Many new business owners make a number of common mistakes, and the "Shark Tank" investor Kevin O'Leary just named one of the most egregious ones.
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In a tweet sent on the morning of Aug. 14, O'Leary explained that one "huge mistake" some companies make is taking on more debt than they can handle.
He advises never to go above one-third of your company's cash flow, saying that's the "magic number."
A huge mistake I see some companies make is taking on too much debt. Never use more than one-third of your company’s free cash flow to service debt. That's the magic number.
— Kevin O'Leary aka Mr. Wonderful (@kevinolearytv) August 14, 2023
O'Leary is known for his business acumen, especially since he began appearing on "Shark Tank" in 2009 and making a name via the blunt persona he wields on the show.
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Advice about business debt varies. Some older advice says 20% to 40% is a good range to be in, while more recent advice leans in the direction of 30% being the hard cutoff.
The average business owner has between $100,000 and $250,000 in debt, according to a 2021 Statista survey.
According to recent Federal Reserve reports, small-business debt is rising: The amount of debt businesses are taking on is up 9.1% from 2020.
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