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Categories: Entrepreneur

Debt – Get a Healthy Attitude About It

It is thrilling to help your business by taking a healthy look at debt. Often entrepreneurs are afraid of debt. This fear of debt can prevent entrepreneurs from growing their businesses as they should. However, once an entrepreneur has a healthy understanding of debt and its place in business, there is opportunity for growth. It is important to understand that every business has debt. Business debt includes all of the following items:
  • rent
  • employee,payroll and employee related taxes
  • supply costs
  • taxes
  • association and membership fees
  • website associated costs

 

photo credit: The Eggplant via photopin cc

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 thing, 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:

  • income
  • current expenses
  • cash flow
  • profit and loss statement
  • accounts payable
  • accounts receivable
  • purpose of the loan
  • Projected return to be had on loan funds

If after the analysis  is done it is determined that the company has the ability to repay the loan and the loan will benefit the company in a real and significant way, 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.

 

Photo Credit: Janeane Davis Healthy Look at Debt

 

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 to you control debt in your business?

Janeane Davis

View Comments

  • I'd never thought of seeing Debt as something positive. As a personal finance/frugal blogger, debt is a dirty, nasty word. I've never viewed it in a business aspect though. Thanks for explaining it to us.

    • I like your blog because you teach us to keep debt as low as possible! I don't want people to be scared of debt, but I want them to check out your blog for ideas to keep it under control.

  • I really do respect debt, in that I try my best not to have it. Thank you for explaining debt and what is acceptable. It made things a little more clearer for me.

  • You are probably hitting lots of nerves with this one. Debt is a part of life that many are comfortable creating but scared about reducing.

    • Thanks for stopping by again Tomika! Debt is important, we need to learn to appreciate, understand, control and reduce it.

  • Debt is an ugly word for many people. i'm hoping my kids grown up with a healthy relationship with money and finances

    • Melinda you are so right. We are trying to teach our children to do and be better than we were!

  • When I did my expenses and income for last year, I freaked out a bit since I hadn't made any income. This year, I'm pushing myself to keep my eye on the income while being more careful about my debt. The income is irregular and the debt happens every month.

    • Blogging for money is new to me. When I ran my law practice income each month always exceeded expenses. Things are different as a blogger. I try to keep the expenses low and I am working on getting the income more regular.

  • You make a great point. Often times it is difficult to look at debt in a healthy way when you are scared of it. True in even a personal finance way. When you begin to tackle it head on is when progress is made!

    • Lauryn you put it all very well. It was like reading Dr. Phil! We have to face things in order to deal with them. We cannot let fear paralyze us.

  • Debt is scary. It is important to understand the different mindset regarding personal debt vs. business debt. These are great guidlines for working iwth business debt.

  • What an interesting series. I am recommending your blog to several friends. Thanks for the info and insights.

    • Sharon, thank you for your kind words and the recommendation!

  • Great information for helping businesses grow, Janeane!

  • Great article since good debt can really help grow your business. And you must KNOW your finances. :)

    • I am glad the article is The Credit Woman approved! Thanks Tara.

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