Bonus post today, just because I felt like it.
Dave Ramsey is launching a new vertical in his company: EntreLeadership.
From what I can tell, it’s a book and “consulting” program for running a successful company much like Financial Peace University is a book and consulting program for running a successful personal budget.
This will be a blogging goldmine.
Dave Ramsey may totally miss the mark on mortgages, tax deductions, investment choices, and a billion other items for our personal budgets. But now he’s going to show us how we can slaughter critical thinking in business budgets, balance sheets, and income statements. I can’t wait.
It’s one thing to write a book about how to get out of debt and stay out of debt on your personal balance sheet. But businesses are not people. Businesses do not run on cash, and the most profitable businesses are not debt free. This is going to be corporate finance gold. Gold, I tell you.
Debt is the engine of a successful business operation. If cost of debt service is less than the return on assets, then leverage makes sense. But not for Ramsey. Of course, this book includes “everything they should have taught you in business school.”
Dave tells you that he went broke by buying real estate on leverage. What he doesn’t tell you is that he ignored the most basic concept in corporate finance: capital structure. It’s true; he bought long-term real estate investments with short-term leverage, the equivalent of borrowing money at 2 years to buy a 30 year treasury bond. It’s stupid. Dave’s stupid.
And of course, his stupidity lives on. What did Dave learn from the experience? Well, for starters, he didn’t learn his lesson: cash flow and debt service have to be structured intelligently. He didn’t learn that there is such a thing as systematic risk.
However, he did learn that all debt was bad because it was debt, not stupid use of debt, that made him broke. Parallel logic would recommend that business owners close up shop on all Wednesdays if a certain Wednesday just happens to be unprofitable. No logical business owner would ever do that.
Just in case you’re interested, Dave’s new deal is on Amazon for pre-order: EntreLeadership: 20 Years of Practical Business Wisdom from the Trenches. And, just like before, he’s setting up an “ELP” vertical so that he can monetize your bad decisions that he encouraged.
If Dave Ramsey were made CFO of a publicly-traded Fortune 100 company tomorrow, would you buy into it?
If you answered yes to the question above, are you currently under the influence of any drugs or alcohol?
Bonus points: Do you think Dave considers a return on assets of less than 12% per year to be a negative economic return on capital since “growth stock mutual funds” provide similar returns?