Connect with us

David Brown

Here’s How to Make Debt Work for You, Not Against You

These are the three main factors to consider when taking on debt.

mm

Published

on

DEBT IS OFTEN a part of business that can’t be avoided. When used wisely, it can be a catalyst for business growth. When used unwisely, it can be the undoing of a business. How you use it can make or break your store’s performance, yet many business owners fail to understand debt fully and the impact, both positive and negative, that it might have.

There are a number of factors you should consider when deciding to leverage your business. Here are five important things to consider.

Invest in Assets That Increase or Provide Positive Cash Flow

Debt comes at a cost, and that cost needs to be offset by a source of income. If you invest your loans in assets that can either increase in value or provide income in excess of the servicing costs, then you are ensuring your debt is a positive generator for your business.

Separate Business from Personal

Using business debt for private purposes can lead to long-term cash flow issues. This is a continuation from point one. If you load the business with debt to fund a holiday home, then you need to ensure other parts of the business are strong enough to meet the extra cost, as the asset itself will not be providing cash flow (unless you choose to rent it out).

Don’t Overextend

Deciding to take on debt is the first question, deciding how much to take on is just as crucial. Assess the risks of your investment losing money, the equipment you buy dropping in value, or that the income from your investment won’t create enough cash flow to meet the debt obligations. Your income returns can be uncertain; your debt obligations are often set in concrete.

Structure Correctly

How you set up your debt can affect the long-term cost, not only in terms of what you may have to pay back, but whether you can enjoy a tax benefit from the IRS. It’s important to get good advice before organizing your loan.

Advertisement
Consider the Security Offered

Banks will always seek as much security as they can. In a perfect banking world, they will want everything you own to underwrite the loan, including your firstborn! You need to be comfortable with what you will give and how forfeiting security will affect future decisions, including getting additional funding later.

David Brown is the President of The Edge Retail Academy (sister company of The Edge), who provide expert consulting services to help with all facets of your business including inventory management, staffing, sales techniques, financial growth and retirement planning...All custom-tailored to your store’s needs. By utilizing the power of The Edge, we analyze major Key Performance Indicators that point to your store’s current challenges and future opportunities. Edge Pulse is the ideal add-on to the Edge, to better understand critical sales and inventory data to improve business profitability. It benchmarks your store against 1100+ other Edge Users and ensures you stay on top of market trends. 877-569-8657, Ext. 001 or [email protected] or www.EdgeRetailAcademy.com

Continue Reading
Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

A Liquidation Sale during a Pandemic? Wilkerson Showed Them the Way

For 25 years, Stafford Jewelers of Cincinnati, Ohio, was THE place to go for special gifts, engagement diamonds, high-end Swiss watch brands — in other words, the crème de la crème of fine jewelry. But this summer, the Stafford family was ready to retire. So, they chose Wilkerson to help them close up shop. “One of the biggest concerns was having the sale in the middle of COVID,” says Director of Stores Michelle Randle. Wilkerson gave the Stafford team plenty of ideas as well as safety guidelines, which they closely followed. “All of the employees felt safe, the customers coming in the door felt safe and we did a lot of business,” says Randle. How much business? “The inventory flew,” she says. Translation: They sold millions and millions of dollars-worth of merchandise. Randle calls it, “an incredible experience.” Would she recommend Wilkerson to other retailers who are thinking of thinning their inventories or retiring? “Everyone got more than what they expected out of the sale. You have to hire Wilkerson. They’re amazing.”

Promoted Headlines

Advertisement

Advertisement

Advertisement

Subscribe


BULLETINS

INSTORE helps you become a better jeweler
with the biggest daily news headlines and useful tips.
(Mailed 5x per week.)

Latest Comments

Most Popular