- employee,payroll and employee related taxes
- supply costs
- association and membership fees
- website associated costs
A quick look at this list will show that almost every business has debt. Debt is commonly defined as a state of owing money. Most businesses have short-term debt. Like the items included in the list above. These are debts that are due to be paid off in a period of less than one year. Businesses may also have long-term debt which includes things such as loan payments, credit card payments and mortgage payments. Since the reality is that almost every business has debt, it is imperative that entrepreneurs get a healthy attitude toward debt rather than an adversarial one.
Debt need not be the enemy of business operations and entrepreneurs. In fact, certain debt can be thought of as a good thing. For example, every day that an employee works, that employee is owed a debt by the business, a paycheck. It is good to have employees, to provide jobs and be part of helping the American economy to grow. Employee payroll associated debt can be thought of as good debt. This is not the type of debt that normally scares entrepreneurs. The debt that normally scares entrepreneurs is loans. However, a loan is sometimes needed in order to finance items needed for business operations.
Before becoming indebted for any item, large or small, it is important for an entrepreneur to look at several factors to make sure the business will be able to manage the debt. For example, a business that wants a loan to purchase new computer equipment should look at the following factors:
- current expenses
- cash flow
- profit and loss statement
- accounts payable
- accounts receivable
- purpose of the loan
- Projected return to be had on loan funds
First, do an analysis to determine if the company has the ability to repay the loan and if the loan will benefit the company in a real and significant way. If the answer is yes, then the debt to purchase the computers can be considered good debt and probably should be taken. If however, the analysis shows that the company cannot afford to make the proposed loan payments or that the benefit to the company would be insignificant or non-existent, then the debt may be considered bad debt and probably should be avoided. What this brief analysis shows is that debt itself, simply by the nature of being debt is not a good or bad thing. It is simply a fact of operating business. Instead of being afraid of debt, start to realize that it is a part of business and on its own is neither good nor bad.
In conclusion, in order for a business to be healthy, an entrepreneur must get a healthy attitude and understanding of debt. An entrepreneur must learn to manage debt adequately, correctly and without fear. So, the question for you this thrilling day is, how do you control debt in your business?