Posts

Young desperate business woman with her head squeezed between laptop computer and a rock. Student university education loan debt concept
If your company or business has been in trouble for a while and you cannot seem to pay off your corporate debts, your collectors may start looking for money. They can do this by threatening lawful action against you or your company. The way your industry is set up and whether you or your business guarantee any debts or recompenses will predict how much your creditors will be able to get from you through your bookkeeping records. Furthermore, whether you choose to file for insolvency may also change how much a creditor can obtain.

Protect the Company

Understandably, the first possibility in trying to save a business while handling its debt is taking money out of your own pocket and putting it into your business. This is a premeditated risk that possibly has failed as many times as it has prospered and should only be done if you can validate it as a short-term bookkeeping approach that promises the probability of a long-term payout.

Cut Expenses

If you cannot bond out your business with private assets, you need to recognize areas where you can condense costs. Maybe you can sublease the unused space or sell off unused equipment. While lessening your employees is not a striking option, it may be essential to keep your business alive.

Contact Clients and Providers

Stay associated with your consumers and seek out ways to upsurge your exposure and/or develop your business model, thus possibly increasing your profits. Offer your best clients discounts if they can pay you quicker. You should also contact your dealers to arrange discounts and/or deferred expenditures.

Contact Creditors

Contact every collector and advise them of your pickle. Ignoring your money lenders can only make matters worse, while confronting a debt problem is easier when you act timely. Since it’s in everyone’s interest to find a resolution, request that your investors work with you on bookkeeping to lower interest rates, increase your credit line, or streamline your repayment options.

Amalgamate Loans

You can merge your business loans into one reimbursement, which may reduce monthly costs without negatively affecting your credit. A business debt consolidation loan can allow you to deal with a single collector, rather than many, and perhaps get a loan with a lower interest rate. The process can be facilitated by a debt consolidation company hired to take accountability for conveying the new loan, gathering payments of your business, and paying off your former creditors. The loan may be unsecured or secured by business assets.

Bankruptcy

As a last resort, liquidation is a route you can take to salvage a company, especially if the business’s debt challenges are temporary and the company is otherwise viable. Liquidation can always be measured when your company is deep in the red and you may be facing collectors coming after you. There needs to be a lot of thought before filing for bankruptcy, but it may be able to provide you with the period you need to get the whole lot straightened out. There is no assurance what possessions you will be able to keep after insolvency, so you have to prepare yourself.

Benefits of Bankruptcy: How it can Help You

One of the main gains that can come from filing for liquidation is time. Once you have filed for insolvency, the bankruptcy court of law normally puts an automatic stay on all debt collection, meaning that none of your collectors can ban or recuperate your assets.

In addition, liquidation can wipe out unsafe debt (debt that is not protected by property, like credit card debt). Though, fortified debts (e.g. home mortgages, car loans) are another story and must be deliberated individually. Because you put up possessions as a security for the loan, your creditor is still possibly authorized to take it, even if you file for insolvency.

Final Note

If you think you are in imminent danger of losing your business, however, and you need help quickly, bankruptcy might be your best option. But, before you file, get advice from a knowledgeable small-business attorney with bankruptcy experience.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

debt free concept - text in vintage letterpress wood type on a digital tablet with coffee and pastry
Business debt is taken by an entrepreneur to use in funding huge purchases that they would not be able to afford under normal conditions. A debt arrangement means that the borrower is given money under the condition that borrowed money will be paid back at later dates. The majority of the time, this is paid back with high interests. There can be different types of loans. Debt can be issued either to an individual borrower or to a business. 

A service company is also a business, however it provides services instead of physical goods or products. There are various categories of service companies. An accounting firm, which performs audits of other companies, prepares income tax returns, and provides bookkeeping services to another company, is a good example of a ‘service company’.

Impacts of Debt on your Service Company

Bankers and lenders will be more than interested to provide loans with interest to your service company. They will ask for your personal guarantee of a debt. This debt will work like a handcuff for you. Even if your service company fails, the lenders have all rights to receive the money back for the loan from you, personally and legally. A few of these lenders who give away loans to small sized businesses will take payments from your business checking accounts.

On a big scale, if a service company is growing fast and a small loan is taken with a low interest rate, it is not necessarily a bad thing to do. An affordable debt is a good choice in certain cases when running a service company. But, consider all pros and cons before the initiation of a loan taking process.

Grow your Service Company Debt-Free

  • Reduce expenses.
  • Do not mix your personal finances with your business account. Start paying for the things you need, not want.
  • Sacrifice the fast track for slow growth. Many entrepreneurs want to grow their businesses by leaps and bounds in no time. A small service company will grow more slowly without debt, but a debt-free business is still a better option.
  • Never miss a chance to pick customers who give gross margins to your service company.
  • Know the exact cost of the services you provide to your customers. Never compromise on the price or your company will either dissolve or will go into debt.
  • Keep a strong handle on your business bookkeeping.
  • Business operations must be routinely carried out for all companies including service companies. Keep all accounting statements up to date and know where you stand at all times.
  • Use your budget wisely.
  • Never spend all of your gross and profit margins. Fix a percentage of 30-40% of gross margin and 10% profit margin. Only spend in this range from gross margins. Do not distribute profit all at once among shareholders. You will need much of the cash to fund the growth of your service company.
  • Stay sharp with your business situation. Use accounting software to keep an up to date accounting system.
  • Credit cards should be minimally used in small-sized businesses as the loans will pile up quickly.
  • Do not select your prices out of fear of going into debt. Know the actual cost of the services you provide and price accordingly. Overpricing may become a cause of losing customers.
  • Company leaders must be efficient, smart, and confident in sales, good at interpretation of accounting statements and fair to their employees. Such a service company will grow successfully.

Conclusion

Bigger is not always better. A debt-free and profitable service company is better. Service company owners must keep the debt financing option as the last priority and when it is actually needed. Debts halt the growth of small businesses. A service company ideally needs no debt to get started. Without debt, the growth of the business may possibly be slower but it will still be profitable. Using valuable strategies and techniques will grow your service company debt free. 

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

A small businessman smashes a giant swinging iron ball with a word DEBT on it using a hammer. Get out of debt. Reduce credit. Financial help.
In economics, personal debt, often referred to as consumer debt, is a loan taken for consumption, not an investment, in the business. It is often used to purchase goods which are consumables and do not appreciate in business. When a financier or a financial body gives a specific amount of money to the borrower, this money is called debt.

Debt is created by the borrower who will have to return that money lent to the financier. Debt is also called a loan. There can be different types of loans. The person or entrepreneur who owes debt is a debtor and to whom this loan/debt is owed, is a creditor or lender. Debt can be issued either to an individual borrower or to a business.

Personal debt is taken by the individual entrepreneur, not by the business and/or corporation. Debt is taken by an entrepreneur to use in funding huge purchases that he/she could not afford under normal conditions. A debt arrangement means that the borrower is given money under the condition that he/she will pay back the money at later dates and, most of the time, this is paid back with interests.

7 Rules for Going into Personal Debt as an Entrepreneur

Whatever the business is, money is required as an investment to get a business started. Even if the business is a one-person business, in the beginning, it still needs money for registration of the name, logo, tools, work space and a computer for running the business. Even the smallest business requires money for a good start-up. If the entrepreneur does not have enough savings or the business operating expenses may grow beyond the revenue, then it is obligatory to take a loan to invest in the business.

There are many options to attract potential investors but, if there is no evident system of revenue in the business, the banks may not give the loans. In that case, entrepreneurs have an option of going into personal debt.

Here are some important rules to be followed by entrepreneurs going into personal debt.

1.  Personal debt must not be taken as the first choice. First, consider all other options available at that time to invest money in the business rather than taking a personal loan as the first choice. Review the business plan and bookkeeping. Clearing these issues will make the business plan more appealing to potential investors, which can further decrease the chance of going into personal debt as an option for the entrepreneur.

2.  If the business is of small size, then go for loans offered by the government which are provided with the least interest rates.

3.  Get rid of any current debt first. Remove previous debt as much as possible before going into a business that will need more loans.

4.  Have a clear-cut idea of what a personal debt is. Even though you are using this loan for your new business, going into personal debt is a personal loan. You have to pay it back yourself. Though you might be investing the lent money in the business, paying back this loan with interests is your liability. Many businesses do not generate remarkable profits for years. If the business is new and not already a successful running business, then the fact that the business could go under must be kept in mind.

5.  Get personal loans at the best interest rates. Try searching for better interest rates, which are more feasible for an entrepreneur to pay back the loan rather than taking on much higher interest rates.

6.  CrowdFunding Option: In this case, large masses of people are asked to invest small sums and a huge capital investment is created.

7.  Always have a backup plan when going into personal debt. In case a business fails or does not yield enough profit to pay back the loans with interest, the entrepreneur is personally accountable for the debt taken, no matter what.

Conclusion

Personal debt is a good option for entrepreneurs for investment in a business plan, but always consider all other options first. Always have a backup plan if the business fails, as the entrepreneur will be personally accountable for paying back this loan.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

Midsection of tax auditor examining documents with magnifying glass at table in office
It is not a good news; the IRS has been rising again with a focus only on audits and collections. Another thing, it appears that a big focus is going to be on business owners. If you have been recently avoiding IRS notices regarding tax debt, you may want to think about taking numerous steps to resolve it. If not, your business, as well as personal life, might become a lot more complicated and stressful. Nevertheless, the IRS has huge powers, for instance, to seize the assets. Here are some of the steps, which can be taken with your IRS tax debt:

 

  1. Know Where You Stand

Carefully review all of your IRS letters along with your tax returns. It should not come as a surprise that the agency might have made some mistakes. This means that you might ultimately reduce the debt you have. Even though it is usually a good idea to get support from a tax professional, these potential savings you gain might be so much more than the fees that you are going to pay.

 

  1. Negotiate the Penalties

Tax penalties can spiral out of hand very quickly. This is the reason why you should act very swiftly when you deal with IRS debt. However, you might also be able to negotiate with your agency to lower and, sometimes, even eliminate the penalties, if you show reasonable cause. Examples of this can include serious illness, difficult financial circumstances, and/or the destruction of your home or the business you are running. The IRS, furthermore, has a program that offers relief to those who have gotten in trouble with the agency for the very first time.

 

  1. Payment Plan for Business Debt

After you know how much you actually owe, you can easily put together a working plan. One of the most common approaches is to set up an installments agreement. This arrangement might last for as long as 6 years (all payments should be made on a monthly basis with interest or the penalties will continue to accrue). Remember, this kind of an agreement is going to put a stop to actions such as liens and levies. If you are indebted to $50,000 or less, then this process is most likely to be forthright. This can be done online; however, you are going to be in compliance with the IRS, for instance having made the tax filings, deposits and the withholdings.

 

  1. Reduce Business Expenses

You should always take a look at your operating costs. Figure out the expenses you might be able to deplete versus the services required for the daily operations of the business. For instance, are you going to pay for a subscription which you can make use of infrequently? Are there some professional memberships which you can suspend temporarily until you get the financial house back in order? Consult a professional accountant or use accounting software to predict the financial impact it would have on cutting the costs.  

 

  1. Other Options

You have most likely seen TV advertisements where the representative makes the claim that you can settle your IRS debt at “pennies on the dollar”. Does this sound too good to be true? Yes, indeed this is most often the case. However, the IRS does have a thing called the “Offer In Compromise or the OIC. This allows you to pay off your business debt at a discount. This process involves releasing financial information with the forms 656 and 433. This will furthermore determine the amount which the IRS considers livable without causing financial restraints on the users. Please note, the IRS rejects numerous submissions. It is a very good idea to get the help of a tax professional who has the complete knowledge of filling paperwork along with navigating the IRS bureaucracy as well.  

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Get out of debt - Complete Controller

Borrowing money is sometimes a business necessity, and sometimes business owners go into debt to boost business growth. This often has the opposite result, and instead of rapid growth, the debt becomes a serious cause of cash flow and other funding problems in the business. Small business owners should prepare and implement a step by step guide to ensure that they can get out of debt before the company fails. Check out America's Best Bookkeepers

 

Getting out of debt

 

Step One

  • List All of Your Debts, Their Balances, and Interest Rates.
  • After tracking down all of your debts, you will have a clear idea of how much is payable.

 

Step Two

  • Set Periodic Goals.
  • Plan out your total debt. Then, know the dates of their payback schedule. Divide your debt into monthly savings in a separate account in your business. You will keep an amount of money every month on that account reserved for debt payments.

 

Step Three

  • Reduce expenses. The crucial step in getting out of debt is to minimize expenses in the business.
  • Make a priority list.
  • Ensure your employees’ wholehearted participation.
  • Strictly check accounting statements, especially financial statements.
  • If you are spending a huge amount on advertising your products, you simply cannot cut all of the advertising costs, but you can find alternatives. Go for social media advertising, and it will also aid in direct interaction with your potential clients. Check out America's Best Bookkeepers

 

Step Four

  • Do not mix your personal account with your business account. This is one of the biggest accounting mistakes small business owners make. You will not get the true picture of your business’s financial status.

 

Step Five

  • Keep a strong control on your business bookkeeping to avoid frauds.
  • Cut short on unnecessary expenses.
  • Manage business operations more effectively.
  • Predict, analyze, and sort out business funding, cash flow, and other problems over time.

 

Step Six

  • Revise your budget.
  • Keep the money for monthly payments of the debt. Do not use this money for any other purchase. Otherwise, the debt with interest will continue to pile up. Manage your inventory. Do not purchase extra stock.

 

Step Seven

  • Sacrifice the fast track for slow growth.
  • Many entrepreneurs want to grow their businesses by leaps and bounds with no time. 
  • Try not going into more debt for rapid growth in business until you have paid back all of the previous debt.


Step Eight

  • Know the exact cost of the services you provide to your customers. Never compromise on price, or the company will either dissolve or will go into increasing debt.

 

Step Nine

  • Stay sharp on your business situation. Use accounting software to keep an up to date accounting system.


Step Ten

  • Drop credit cards. Credit cards should be used minimally in small-sized businesses as the loans will pile up quickly. Check out America's Best Bookkeepers

 

Step Eleven

  • Think productively about producing more income.
  • Debt counselors often suggest finding means to bring more money into your business to eradicate the debt-payment liabilities from your business once and forever. Find ways to increase your income. 
  • Liquidating high-value assets can be done as a last resort but, still, it provides an option for paying the debt on time. You can sell a valuable asset of your business, which is not being used or is not a part of the capital investment.

 

Step Twelve

  • Work harder and work more. Create extra shifts and put in overtime for getting out of debt. You can seek out options to work overtime for the time being while your company is in debt.

 

Step Thirteen

  • Every time you achieve your goal, reward yourself. Keep achieving your goals until your company is debt-free.

 

Conclusion

Getting out of debt is of great importance. If not paid down promptly, interest can increase the debt to an unmanageable level. It can further force you to take on even more debt to run business operations. Instead, prepare and implement a guideline for you and your employees to get out of debt fast.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

Senior man talking to employees in office meeting. Marketing team discussing new ideas with manager during a conference. Senior leadership training future businessmen and businesswomen.

Leadership skills in a New Business

Entrepreneurs are considered leaders with vision and exceptional ideas that take the strengths of their company and employees together for achieving goals of the organization. Leaders of a new business usually take the responsibility of success or failure of the business upon themselves and the most prominent risk faced by the company is serious business debts.

But, numerous examples of failures of new companies in the corporate world show us that there is a difference between entrepreneurs and capable leaders. Many entrepreneurs have great ideas, but they lack the necessary leadership skills and proper bookkeeping for execution of these ideas with adequate team management.

The central role of a leader in a startup is not just generating ideas.  A core leadership skill is taking the team and organizational resources currently available to execute the plans. Team building is another essential skill that leaders must possess to make their company a successful endeavor.

Decision making Under Stress

The most significant strength of any leader of a new business or a startup is the ability to make crucial decisions in short and limited time. Scientific research by experts at Harvard indicates that true leadership capabilities are determined when they are under duress. For example, how well does a leader handle their serious business debts?

Procrastination in leaders is not an ideal trait for running a new business smoothly. The leader needs to be vigilant and close to employees in critical times. Keeping the employees close and explaining the principles of proper bookkeeping to them makes for excellent leadership skills. 

Managing Teams in the Initial Stages of New Business

A significant strength of a new business leader is the art of managing people in teams to make the company achieve its goals and objectives. The difference between a failed venture and a successful one is selecting the right side. When the new start-up business is going through turmoil and faces dangers of serious business debts, sometimes the leader will be aware of how their team members are regarding their individual personality, but in stressful situations, the reactions of people are different.

Without proper guidance by the leader, the team will collapse and eventually cause the company to fail. Instead, the main strength of the company and its leaders is to use the skills of each team member in different environments.

Irreplaceable Traits of a Leader

The leader of any new start-up must rely on their skills and tend to focus and improve their decision-making skills because these traits are unique. Another important aspect of company strength is to stick with the founding team of the company when facing serious business debts.

Dealing with managing debts and similar critical business scenarios brings about the best and the worst traits of teams and leadership.  It is important to rely on the strengths of each team member and communicate the problems wisely.

Communication between Team Members

The communication skills of a leader in a new business are important because the leader must be able to communicate all of the necessary information needed for proper bookkeeping. The strength of a successful leader is to align the dominant and distinct features and abilities of their teams.

The team must feel comfortable in sharing their ideas to make the new company successful. For this purpose, the roles assigned to groups must be flexible and according to their individual abilities. Developing the new venture in the current volatile corporate environment is necessary for the leader and the team. The focus must be on getting new clients and adding more business while focusing on minimizing serious business debts.  Customer retention as a core strength of a new company depends on adequately communicating the client’s needs by business leaders to their team. Some client needs are complex and need more communication between groups and the leader.

The Bottom Line Conclusion

Effective leadership is essential for new business ventures, the undeniable fact of skilled leadership leads to better management of the team. Proper team management is a major strength for a new business to overcome their challenges. The success of the company is just a fraction of good performance by the leader, but it is more dependent on the role of team members and their efforts.

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

serious business debt - Complete Controller

Debt is the amount of money received from a lender to invest in a business to finance its operations. If paying the debt back is not prioritized in small business, it will keep on piling up and become a serious threat to your company. The debt will become unmanageable and can result in the bankruptcy of your small business. Here are six amazing tips for digging your small business out of serious debt.

 

  1. Cut unnecessary costs and free up cash

Keep a strict check and balance on the expenses going on in your business. Do not sign any repayment application before double-checking the purpose, date, and invoice number.

Eliminate unnecessary expenses in your business. For example, if your advertising is costing you too much, then consider using social media and directly interacting with your potential customers as a way to lessen the cost. Check out America's Best Bookkeepers

  1. Consolidate your loans

Serious debts in small businesses often result in cash flow problems, which will create more debts. Small business owners often take more debt on interest to pay back their previous debt. These owners can refinance their business by consolidating the debt they have taken. They will have to pay back the debt monthly in small, manageable payments.  Making these payments means you will have to reserve a smaller amount of cash for debt payback every month. This will not generate a cash flow problem in your company, and this can allow you to take more loans for debt payments and other business operations.

  1. Think productively about increasing income

Debt counselors often suggest finding a means to bring in more money in your business to eradicate the debt-payment liabilities from your business once forever. Find ways to increase income. You can seek out options to work overtime for the time being while the company is in debt.  Check out America's Best Bookkeepers

Liquidating high-value assets can be done as a last resort but, still, it provides an option for paying the debt in time. You can sell a valuable asset of your business, which is not in use or is not a part of the capital investment.

You can ask investors to bring in more money to grow your business and pay back the loan faster for digging your company out of serious debt.

  1. Prioritize debt payments

Paying the debt must be your priority. You can hold onto certain expenses. You can hold some personal facilities for you in your business. Inventory should be managed. You can delay payments of your purchases until the date it is due as long as you pay in time. All of this has to be done in the process of digging your company out of serious debt with those high-interest rates that can kill any company.

  1. Revisit the budget

If the debt continues to build, then it possibly means that the company’s existing budget is not working out. Cut down on the expenses that are not vital in your company. Always keep the money for your monthly payment of the debt. Do not use this money for any other purchase. Otherwise, the debt with interest will keep piling up. Manage your inventory. Do not purchase extra stock. Check out America's Best Bookkeepers

  1. Drop credit cards

Credit card use in your company also means that your business is delaying payments of the expenses. Try using cash when available.  And, if the money is not available, avoid over-spending. Do not use credit cards while you are in the process of digging your company out of serious debt. Credit cards are also a means of unnecessary purchases at certain times.

Conclusion

Serious debt on your small business is the debt you had taken earlier in the company’s history that continues to pile up. The reasons can be that the debt on your company produced cash flow problems, and you had to take more debt. The interest on debt kept increasing along with the loans taken. This piling up of serious debt can result in the insolvency of your small business. Use the above tips for digging your company out of serious debt.

 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
Debt Vs Equity Financing - Complete Controller

Debt is often created by an entrepreneur when funding large purchases that could not be afforded under normal conditions. A debt arrangement means that the borrower loaned money under the condition that the money will be returned through payments with interest.

 

Equity is the worth of an asset minus the total of all liabilities on that asset. Equity financing is the course of increasing capital by the sale of shares in a business. The sale of ownership parts to increase finances to business is equity financing. Equity financing has a broad spectrum to increase ownership shares. Friends and family members can be asked to invest funds and gain ownership shares accordingly. Financing from other private companies can also be considered in equity financing.  Check out America's Best Bookkeepers

Debt vs. Equity Financing

Debt vs. Equity Financing is a very strategic decision to be made by small and medium-sized business owners/entrepreneurs. One should consider all of the pros and cons of increasing business capital through debt financing or equity financing.

Advantages of Debt financing through Equity Financing

  • When taking debt, the lender has no claim to equity in the business. Ownership remains the same. Business operation and bookkeeping decisions remain with the owners/entrepreneurs/executive management.
  • When net profit is increased, the lender will only be given the debt money and the interest in it. If business progress and rewards are larger, the entrepreneurs will reap the rewards. The lender will have no claim or share in the business rewards/profits.
  • Interests on debt can be subtracted on the business’s tax returns.
  • There will be no need to seek the vote of shareholders in the business for making certain decisions. Check out America's Best Bookkeepers

 

Disadvantages of Debt financing over Equity Financing

  • Debt has to be paid back with interests, regardless if the business is running successfully or not.
  • High interest in debt during the recession of business can dissolve the business.
  • The bigger the debt to equity ratio in the business, the riskier business is considered by the investors.
  • The company is usually required to place assets of the company as security/warranty to the lender.

 

Debt vs. Equity Financing: Which way should your business go?

  • How early are the finances needed? If there is no time to wait, then debt financing is the option left to invest in the business.
  • How much finance is needed? If there is a small amount to be invested, then debt can be taken.
  • If a company is running successfully and financing is required urgently, debt can be taken.
  • If the business is growing and successful, equity will provide a chance to attract investors with experience and knowledge. A good business relationship is established among the entrepreneurs/investors. It can have a remarkable positive impact on business in the long run.
  • Debt is good only if you want to keep the business local and keep the whole ownership with you. But, if the business is progressive, reaching to other markets other than your local community, you might need to go for equity financing. Check out America's Best Bookkeepers


Conclusion

Debt and Equity Financing are the two options available for small to medium-sized business owners when they need to invest more money, but they lack the amount at the time of financing. Entrepreneurs must consider all options for choosing debt or equity financing. If the company is facing a period of decline or recession, then the debt may not be a good choice.

 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
hungry tiger - Complete Controller

Debt is the capital a businessperson borrows from an outside source and agrees to return within a specific period along with a specific proportion of interest. Debt has negative effects on business, but most start-up businesses have to borrow finances to begin operations. Even well-established businesses often take on debts. The most common source of debt is banks, other companies, friends, and family.

Companies need to borrow money while making purchases like equipment and heavy machinery, etc. Debt is the real killer of a company. It can be compared to a tiger that will consume your company one day if you don’t eliminate it. The reputation of your company can be ruined. If suppliers don’t supply you on credit, you may not be able to offer salary increments, bonuses, and insurance, and a drastic effect on the business finances can take place if you aren’t careful. Check out America's Best Bookkeepers

Here are a few drastic effects which companies face due to debt:

  1. A Credit rating is impacted:

Whenever a company needs to make large purchases, start new ventures, or take steps for marketing, finances are required to support these operations. The company may find it easy to borrow money from available resources. This practice is known as “Levering up”. Borrowing money to fulfill financial needs is not a good practice because the loan will affect the credit rating of your company. Every time you borrow money, it is noted in the credit report of the company. The higher the debt, the more the risk. Lenders don’t lend money easily because of your previously unpaid loans, and you have to borrow money on greater interest rates than the previous ones on every following loan. There will come a time when all of your profit and income is being utilized only to pay interest and debts. The company will fail if you do not have control of debt.

  1. Repayment:

Repayment is a term often used in business. It means paying back loans periodically with interest. When you take the loan from a lender on certain agreed terms and conditions, then repayment becomes your sole-responsibility. Your company is not gaining profits and likely not achieving goals. Even if the company fails, you have to make repayments on time. Whatever the circumstances, your company is facing lenders that will forcefully declare your company bankrupt if it fails to make repayments. All assets of the company are used to pay debts by legal proceedings. A company’s credit rating is drastically affected and, soon, the declination of the company is at its peak. Check out America's Best Bookkeepers

  1. High-interest rates:

If a company is borrowing money, again and again, interest rates will be increased. Interest rates are increased due to many reasons, which are as follows:

  • Credit history of the company
  • Personal credit history of the business owner
  • Banking history of the company
  • Credit rating of the company
  • Macro-economic conditions

The higher the interest rates are at which you are borrowing money, the greater the risk will be, which will mean bad implications for your business. The bigger is the tiger running after your company to hunt.

  1. Effects of Debt on Human Resource:

Debt has a negative effect on the human resources of a company as it is unable to facilitate and retain employees by incentives. It cannot offer a salary raise, bonuses, or insurance, which results in numerous resignations of experienced employees. This also earns a bad name for the company in the market, leaving your company all alone in the sea of debt. Check out America's Best Bookkeepers

  1. Mature debt is a serial killer:

The older and more mature the debt becomes, the more difficult it will be to handle. The older the history of debt in your bookkeeping, the more stressful situation will be.

  1. Failure to satisfy customers:

When there is an increase in leverage, the company may try to cut down costs by compromising on the quality of products or services delivered. This lower standard decreases your customers and ultimately results in less income.

Conclusion:

Debt cannot be good for a company. At all costs, companies should have minimum debts to ensure the growth and prosperity of the business. While it is understandable that sometimes a business may need to borrow money, the debt needs to be a priority to clear, so it never overtakes the business causing it to fail.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
business credit card management - Complete Controller

Management of business credit lines:

Once you get a credit card for your business, the best thing to do is avoid using it except for emergencies. Credit cards for business should be used with great responsibility. When you do use the company card, pay the balance in full and right away. The other consideration should be that usage will increase revenues. Cash flow should be managed, and proper records should be created. Using cash advances or company credit cards should be the last resort. Check out America's Best Bookkeepers

Don’t mix personal and business expenses:

The toughest thing to manage by a business credit card holder is to mix personal and business expenses. Mistakes can happen if you mix both expenses, the business payments may be missed; business purchases may exceed the limit of credit cards. This mismanagement may ruin your personal credit scores as well as decrease your business card rating. When you use business credit cards with responsibility, your rating is improved, and you can get more credit. IRS and creditors expect that you use the credit card of the business to pay for business expenses if you are serious about your business.

Keep yourself updated by checking email regularly

The CARD Act in 2009 is basically for consumers and has less impact on the business credit cardholders. The creditors are often changing the policies and updating the credit card holders via emails. So keep checking your emails to update yourself on these changes.

Creditor’s new policies may compel you to switch to your business credit cards because it is going to affect your business adversely. There may be fees that you don’t want to pay. “There are many nuances to small business credit cards,” says Molly Brogan, a spokeswoman for the National Small Business Association, the oldest and largest non-partisan citizen advocacy group representing over 150,000 small businesses. “You need first to understand what protections your card does offer as a small business, and then you’ll understand more clearly what it doesn’t.” Check out America's Best Bookkeepers

Regular monthly reports:

Monthly financial statements are critical to know the exact financial status of your business. Monthly financial statements tell the amount of capital and credit you are left with. You remain updated by reviewing financial statements often and knowing whether you can pay debts or not.

Avail rewards offered by creditors:

You can get maximum benefits from your business credit card by availing the rewards offered by the creditors. Creditors often suggest rewards according to the specifications of your business and interests. Keep yourself updated by researching different cards and making comparisons to see what is best for you and your company. Select the card, which gives you maximum rewards and benefits.

Similarly, there is a credit card protection card to protect you against credit card fraud

Cash flow management:

The best way to increase profit margin is to manage cash flow. Make a business plan and formulate the budget. Analyze the cash flow of the month and ask your creditors to recharge your credit cards in the dates when there is a huge cash flow expected.

This responsible use of a credit card prevents you from many adverse situations. You can make payrolls timely.  You don’t need to offer discounts to vendors for quick payments. Good cash flow management increases your credit card ratings. Check out America's Best Bookkeepers

Avoid taking debts:

Debt is the tiger that can kill your business.  Debt decreases your rating, and you may not be able to obtain credit when you need it. Avoid debt and avail it as the last option left. Taking debt just for making new purchases for a well-established business is not a good idea.

Debt can be taken only to increase revenues. For example, if your company is hiring new staff, shifting to another profitable location, or purchasing upgraded equipment, these are situations when you may need to use a business credit card. 

Conclusion:

Responsible use of business credit cards is a part of business management and makes you credible in front of creditors, customers, and suppliers.

 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers