Business Debt – Making it Work For You

Posted by Hugh on May 23, 2011 · Leave a Comment
The simple philosophy behind debt in business is – all business debt should somehow generate revenue. This is called performing debt. In order to manage debt, recognize that if debt is not producing, great care must be taken to remove it quickly or its existence must be extensively justified.

A type of performing debt is a property mortgage. Purchasing a piece of property to rent it out for a positive cash flow is one way to engage debt that pays. For example, if the mortgage on a home is $600 and the rent is $1,000. Every month $400 is created by the debt.

A goal for you could be that all debt in your life be performing debt, because that may be debt that does not require you to work. Non-performing debt has to do with things that do not necessarily relate to any kind of cash flow coming into your business.
The best thing to do with non-performing debt is to get rid of it.

Powering Down Your Debt. First, list debts by maturity. Secondly, list your debts by the interest rate. The highest debts with the highest interest rates will usually cost you more over time. There are many ways to approach this: My favorite method is to start paying off the lowest balances with the highest interest, then snowball by taking more and more amounts of money to pay down on less and less hefty interest.

Use Free Tools. Here are some free tools that you can engage to help you plan your debt strategy. www.Vertex42.com. There are many free tools available for download. I actually have one of my business debt portfolios built in one of their software programs. It reports exactly how much interest you are going to pay and exactly the order you need to pay off your debts. I recommend this program.

As your business accumulates debt, the goal is to have it be performing-debt and to quickly and efficiently remove non-performing debt.

Taxation.

Taxation is an incredibly exhaustive topic on its own. The general advice is to arm yourself with a great team. Get a knowledgeable CPA. Find somebody who is doing what you want to do and get a recommendation for a CPA from them.
Before meeting with a CPA or any professional with a high hourly rate, educate yourself and build a plan prior to meeting them. Then take that plan into the professional and have him or her break it. That way you have a whole lot more credibility, the conversation goes a lot faster and you end up spending less on that professional.

A great way to waste money on a professional is to go to them and ask to be taught. It is absolutely the most inefficient way to approach an attorney or an accountant or some kind of professional.

The course that I would recommend, that I’ve taken myself personally, is a course by Sanford Botkin entitled “Tax Strategies for Business Professionals” and it can be found at the Tax Reduction Institute site at www.taxreductioninstitute.com. Consider it as it is a great resource to learn about taxation. The idea is not for you to become a CPA or an expert. You want to be good enough to have an intelligent conversation with the professional you are going to engage. If you do it that way, you will get respect, receive better pricing, and spend less of their time and less of your money.