Finance & Grow Your New Business. Angie Mohr

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СКАЧАТЬ savings. Popular programs such as Intuit’s Quicken or Microsoft Money make the tracking easy. If you do this on a regular basis (monthly or at least annually) you will be able to see how your wealth increases over time.

      Your assets may include:

      • Cash

      • Portfolio investments (bonds, stocks, etc.)

      • Your home

      • Other real estate (cottages, vacant land, rental properties, etc.)

      • Vehicles

      • Savings (including retirement accounts and college funds)

      • Your business

      Your liabilities may include:

      • Mortgage

      • Credit card balances

      • Personal loans

      • Car loan

      The higher your net wealth, the more likely a bank will look favorably upon your business as it needs financing.

      Debt Management

      In order to make sure that you will manage your business debt appropriately, it’s important to first get a handle on your personal debt.

      There is an old adage about good debt versus bad debt. Bad debt is defined as any debt you undertake to purchase things that do not grow in value. This would apply if you’re using your credit card or line of credit to go on a vacation or buy living room furniture or a car. Good debt, on the other hand, is debt that’s incurred to invest in things that will grow in value, such as your home, other real estate, and stock market investments. Conventional wisdom says that bad debt should be avoided or paid down as quickly as possible, but good debt is acceptable and should even be pursued.

      The problem with this outlook is that it does not recognize that debt means risk for you, regardless of what that debt buys you. Any time you have required payments to make, you run the risk of not being able to pay them and thereby becoming insolvent or even bankrupt. When you borrow to invest, either in real estate or in bonds or the stock market, there is no guarantee that these investments will increase in the short term, which is when you have to make the payments. There is a danger that, if the value of the investment drops below what is owed on the loan, the loan will be called. In that situation, even if the investment is sold, you will still owe money.

      Another investment “nugget” suggests that paying interest on investment loans in order to build investment assets is a good idea. As we have discussed above, all investment entails risk, whereas paying down your debts can give you a greater return on an after-tax basis. Let’s look at an example:

      Your spouse has received a $5,000 bonus from his employer. You are considering whether to invest that in your investment account or to pay off the last of your credit card debt. Currently, the long-term investment return from stock investments is about 6 percent. You will have to pay taxes on part of that income, however, and therefore, your after-tax return may be as low as 3 or 4 percent. On the other hand, your credit card company charges 19 percent. Paying off that card will give you a 19 percent return after tax, as there are no tax implications of paying off debt. Not only is your return much higher, paying off debt gives you that return risk free. It’s a guaranteed return. Always keep this in mind when trying to decide what to do with windfalls and extra money in your budget.

      I’m certainly not advocating that you do not have any personal debt whatsoever. Simply keep in mind that debt equals risk. As a small-business owner, you will be exposed to plenty of risk as it is, without adding to it on the personal side. Here are some things that you can do to get a handle on your personal debt situation:

      1. List out all of your personal debts, the terms left on them, and the interest rate.

      2. Rank your debts by highest to lowest interest rates. You will find that the highest interest rate debts are generally credit cards, retail cards, rent-to-own situations, and payday loans. The more the debt is secured by underlying assets, the lower the rate will be. For example, because the bank can take back your home if you do not make the mortgage payments, mortgage rates tend to be lower because the risk to the bank (not to you!) is lower.

      3. Review your budget and calculate how much you can set aside for debt repayment.

      4. Make a formal debt repayment plan. For each debt, you should know how long it will take to pay off (not just the minimum required by the lender). Start with the highest interest rate debts and pay them off as quickly as possible.

      5. Stick to your budget! Make sure that you make the payments that you have calculated every month in order to be out of debt when you have planned to be.

      Your Credit History

      In North America, almost every person who has ever borrowed money from an institution will have a credit report on file with one of the major credit bureaus. This report will have your borrowing and employment history, including amounts owing, how quickly you have repaid past loans, whether any payments are overdue, and whether a lender has ever had to turn any of your debt over to a collection agency in the past. Any past bankruptcies will also show up on this report. This information culminates in your credit score, which is used by lenders to predict whether or not you are a good credit risk. Having a poor score can not only ensure that you are denied future credit but you may also have to pay a much higher interest rate to offset what the lender perceives as your increased risk.

      You have a right to have access to your own credit reports and it is highly recommended that you review it on a regular basis, as often as yearly. It’s important for you to know how a future lender will view you. There is also the possibility that your credit report contains inaccurate information, which you should have corrected as soon as possible to avoid it impacting your credit-worthiness.

      Your personal credit history will also come into play when you start your small business. Most banks and leasing companies will check your personal credit score to make sure that you pay both your personal and business debts on time. This will matter greatly when you apply for a business line of credit or for a lease arrangement for your equipment.

      Make sure your personal credit history is as clean and in order as possible before you contemplate starting your business. It will save you many headaches down the road.

      In the United States, there are three national credit reporting agencies for individuals and it is important to see your credit information from all three:

      • Equifax: www.equifax.com

      • TransUnion: www.transunion.com

      • Experian: www.experian.com

      In Canada, there are two national reporting agencies:

      • Equifax: www.equifax.com

      • TransUnion: www.tuc.ca

      Insuring Your Assets

      Insurance isn’t a topic that many people give much thought to. But it goes hand-in-hand with our discussion about risk. In its most simple terms, insurance (for a fee) protects us against the risk of СКАЧАТЬ