A Somerset Area Accountant Discusses Bad Business Debt

A Somerset Area Accountant Discusses Bad Business Debt

December 4, 2012

We got a bunch of response to last week’s posting, re: how a Somerset Area small business should best plan for 2013, both from a tax and business perspective … and things around our little Somerset Area small business accountant office are certainly heating up — and tax season hasn’t even yet begun.

Which forces me to remind you that if you intend to sit down with us before the end of the year and create a tax-saving strategy for 2013 (and for 2012), I suggest you call (606-678-4372) or email soon to set up a time.

One of the elements we will certainly take into consideration is the financing of your business, and if there are any tax considerations to shift or account for.

And, of course, we’ll investigate how effective that financing is for you. Here’s a start on that…

A Somerset Area Accountant Discusses Bad Business Debt
With interest rates being so low, it’s truly important that you take a look at the financing of your business.

Most growing companies need to take on some amount of debt to fund growth, but debt at exorbitant interest rates is obviously “the wrong kind” of debt. And, amazingly enough, some businesses are still unwittingly saddled with high rates on their financing.

And choosing the wrong kind of debt for your business (or having too much debt) can be a killer to your business’ lifespan and success.

So, what is the “wrong” kind of debt to amass in your Somerset Area business?

The following would make the list:

* Credit card debt
* Car-dealership vehicle loans/leases
* Personal loans at high rates
* A high mortgage balance

But in reality, the wrong kind of debt should be thought of as any debt that is either not necessary — or can be refinanced at terms that are more favorable.

To remove bad debt from your business, you must plan to systematically review every outstanding loan … and try to find a way to either pay it off (without compromising growth, of course) or refinance at a lower rate.

It will take time to organize your debts and search for alternative options that are more attractive for your business, but will pay off in the long run.

If you have expensive debt (such as credit card balances), you should work to determine what other financing options are available to your business. If your company is profitable — or is showing strong signs of coming profitability — it’s likely that lenders will work with you to refinance at a lower rate.

And a tip: don’t think of this as a “favor” they are doing for you.

Rather, think of it as good business for the lender. These financial companies are in business to make money from loans. If you bring a good credit history and a viable business record to them, they’ll seriously consider lending you money at better terms and getting you out of the unnecessarily high payments you’re making.

Doing so will make your company all the more profitable.