How to Be Debt-Free in 2022

Jan. 4, 2022

This MTD exclusive was provided by Dennis McCarron, a partner at Cardinal Brokers, one of the leading brokers in the tire and automotive industry ( 

It’s been a crazy two years. Here in the United States, most independent tire dealerships survived the lows of the pandemic and lockdowns. And many that survived had an increase in sales.

One of the most common themes in the conversations I had with tire dealers across the nation in 2021 was “banking your profits.”

It can be very tempting during a difficult period to come out financially on the plus side and think, “I’ve worked especially hard, so I deserve to reward myself.” 

Yet here I am going to advise you to hold off.

If your business holds any significant debt - other than maybe your original loan - I strongly suggest you use last year’s windfall to pay down debt. 

And if you’re using credit to purchase tires and parts and not paying it off every month, you really need to start putting money into servicing your company’s debt.

The main reasons I urge this are related to your mental health and to help you get through any rough patches in business that are likely to hit in the next 12 months.

Financial stress from owning a business is one of the main causes of health problems in small business owners. 

No one else understands the weight of having to make payroll every week. Not many understand the pressure of signing a loan for close to or more than $1 million. 

That stress affects the way you think, your personal relationships, your sleep and more. 

Bottom line? It’s unhealthy.

From the financial side, it’s very likely interest rates are going to start going up in late-2022 or early-2023. 

Now is the time to reduce debt - not a year from now. Here’s why.

The worst-case scenario is that you’re on credit for inventory and not paying the bill on time. This usually means you have an additional loan or access to credit to help get through “the slow months.” 

Most banks will consider you tapped out at this point as far as extending any more credit, so the people willing to give you credit will do so at very painful rates. 

An additional problem is that if inventory is on credit where interest is paid, the owner is likely not including the interest in the cost, so expenses are creeping upward and net profit is dwindling. 

In this case, some drastic measures need to take place, as this is unsustainable. 

A whole lot of change needs to happen quickly. 

You won’t have access to anyone else’s money, so you typically must create it yourself. 

Raise prices, sell off inventory for cash, skinny down all non-essential expenses and take a big personal paycheck hit.

The next-to-best case scenario is that you have some debt — typically related to leasing equipment, a recent remodel or any other major expense that doesn’t occur commonly — or you have some old debt related to getting your business up and running. 

Take some of your windfall from 2021 and pay a portion off or eliminate it. It will feel good. 

But how much should you pay?

Pay down at least enough to make a bank look at you as a safe bet to lend money. 

One of the first financial items a bank will look at is your “current ratio.” 

Your current ratio is how much in current assets - items that can turn to cash in 12 months, like inventory - you have against your current liabilities, which are items of debt that are to be paid in a 12-month period.

You should have $2 in current assets to every $1 in current liability. 

This tells a bank you have the ability to create an excellent stream of cash and are not tied down with a lot of short-term debt. 

This information is available on your balance sheet. If you need help understanding this more, your accountant can assist. 

And believe it or not, YouTube is a great resource for educational content. 

Just make sure the content provider knows what he or she is talking about before you decide to act on any of their advice.

What you don’t want to do is to pay down so much debt that you are again cash-strapped and must get another loan in order to compensate. 

If you are in this scenario, make sure there is about two to three months of cash in your bank. The rest can go towards paying down debt.

The best-case scenario is that you have no debt - not even a mortgage. Congratulations! You have reached tire dealership nirvana!  

Hand out some performance-based bonuses to the people in your shop, give some merit raises where due and go ahead and buy that “little” reward you deserve.  

About the Author

Dennis McCarron

Dennis McCarron is a partner at Cardinal Brokers Inc., one of the leading brokers in the tire and automotive industry ( To contact McCarron, email him at [email protected].