I spent my 20s mismanaging my money, and came to regret all of those impulse purchases placed on credit cards when my credit score plummeted due to missing a few payments. I didn't learn how much this would affect my life until I was denied for both an auto loan and mortgage in the same year due to my bad credit score. I spent the next few years cleaning up my credit report and putting every extra penny I had toward old debts. Having to put my impulse spending on halt was difficult at first, but it was a great learning experience and I now realize how rewarding saving and investing money really can be. I have put a lot of research into good money management techniques, so I decided to start a blog to share what I have learned with anyone who needs help!
It is hard to ignore the fact that over the past decade or so, the financial position of many Americans has experienced significant delays and setbacks. If your small business has finally managed to recover from that issue or if you were fortunate enough to not be impacted by the recent recession, it is important to be aware of the following advice as to how you can more effectively manage the debts your business currently has. Therefore, you need to be aware of the following information.
Understanding The Impact Of Debt On The Perception Of Your Business's Financial Success
It is important to note that any debts your business carries will usually impact the determination of the value of your business. In turn, if your company is publicly traded OR if your business plan includes making its stock available to the public at some point in the future, the value of your business will obviously impact the value of that stock.
In addition, the acquisition of any additional debt that your business requires in the future, regardless of the purpose for its acquisition, can be approved or declined based on previous evidence of debt management and the value of your business.
Consider If Changing The Status Of your Business Is A Good Idea
If your small business is new or if it has previously been impacted by financial problems, you might need to consider how you can limit your personal responsibility to the acquisition of the debt. One option for doing so is incorporation and another is establishing the company as a Limited Legal Company, or LLC. Both of those can shift some of the responsibility of that debt away from you personally and may be an effective tool for future debt management and responsibility.
Incorporation Versus Forming An LLC
Incorporating your company is a helpful option if you can be sure that its income and profits will make incorporation a profitable choice. For instance, it pays its owners in the form of dividends, as opposed to a regular paycheck and is separate from everyone who owns or runs the business. In addition, it must be filed as a separate corporation in the state where the business exists and a Board of Directors must supervise the running of the business.
An LLC is a good choice if you are willing to register the company and you are comfortable being known as a "member" of the company, as opposed to being an owner. An LLC is unique in that it is a pass-through type of business, so profits and losses of the business are processed through the members. That allows any income from the business to be filed as a member's income and he or she must pay any resulting taxes on their personal, not professional, tax records. It also permits the debts of the company to be the responsibility of the company, and in the case of unexpected financial problems, will not reflect on you personally.
In conclusion, effective and timely wealth management for businesses requires extensive attention to detail while also maintaining an appropriate and acceptable ratio of debt to assets at all times. As a result, when you need to be sure that your business is as protected from financial disaster or unexpected market fluctuations as possible, the above facts about debt management is likely to be quite useful.
Share20 March 2017
