One 'stupid' strategy almost led to the failure of my billionaire-founded Raising Cane's Chicken Fingers business.

Todd Graves' daring approach to financing Raising Cane's Chicken Fingers nearly jeopardized his dream.

The co-CEO and founder of Raising Cane's has an estimated net worth of $9.5 billion, according to Forbes. However, achieving this success was not without challenges. He had to work long hours in an oil refinery and fish in Alaska to raise the capital needed to open the restaurant's first location.

Graves revealed on the "How I Built This" podcast in 2022 that when he was expanding his chain, he borrowed money from private investors at a 15% interest rate. He then used the funds to secure even larger loans from community banks, which treated the debt as equity.

Graves' decision to expand his business into the Baton Rouge area was risky, and it almost cost him everything when Hurricane Katrina shut down 21 of his 28 stores in 2005, temporarily halting the flow of revenue he needed to avoid defaulting.

"Graves said on the "Trading Secrets" podcast in May, "I tell entrepreneurs not to do that because my dream almost disappeared, and it was foolish.""

Graves said that his business was able to survive the hurricane because of its ability to quickly reopen. This experience taught him the importance of balancing risk, and now he ensures that his company has less than three dollars of debt for every dollar it owns.

'Many business owners who hold that kind of debt may not make it'

According to Bryan Bean, executive vice president of corporate banking at Pinnacle Financial Partners, Raising Cane's was fortunate that taking on a heavy debt load initially didn't harm the company in the long run. Bean tells CNBC Make It that many business owners who hold that kind of debt may not make it to the other side.

Bean explains that cash flow leverage represents the amount of debt a company has relative to its EBITDA, which is the money a business generates from its operations before accounting for additional expenses such as interest and taxes.

According to Bean, keeping the ratio below three times is the industry standard for larger companies. For smaller companies, a leverage ratio of one or two times may be more appropriate. Anything above a leverage ratio of three is considered extremely risky, Bean says.

Personal finance experts suggest that individuals should keep their debt-to-income ratio below 36% to be cautious.

Using loans can aid in expanding a business. According to Charlie Munger, former vice chairman of Berkshire Hathaway and Warren Buffett's business partner, who passed away last year, Berkshire Hathaway would be worth "twice its current value" if it had utilized leverage.

Graves owns nearly all of Raising Cane's today because he raised money through debt instead of taking on too many additional investors.

The challenge for companies is to overcome their financial difficulties, says Bean. Unforeseen circumstances like Hurricane Katrina can pose a significant threat to businesses with a lot of debt. Despite the challenges, Raising Cane's was able to generate $3.7 billion in net sales last year, according to the company.

"Graves' selection of a riskier capital structure, loaded with expensive debt, makes the degree of difficulty even harder because he had less room for error, according to Bean."

Graves, despite his reckless actions, managed to save his company, and he now regrets his past mistakes, which he attributes to his youth and inexperience: "I was young and foolish," he admitted.

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