Can we all agree that debt is just one of those things that sort of creep up on you? In the beginning phase you feel in control of it all but all along the way you start to notice things like -- invoices are not being paid, revenue is not be posted to the correct accounts or a vendor is being overpaid due to duplicate payments. These are all errors that can and will allow for debt to become your number one priority in business instead of the least concerned aspect of the business as a whole.
The first moment many business owners think about the word "debt" is when they are deciding if a business-line-of credit is right for them are when completing their first bank loan application for their business after already consuming huge amounts of debt. While the moment of creating business debt may be inevitable, Fontenot & Associates Solutions, LLC is here to share a few tips on how to handle it and stay on track.
In addition, business owner's should consider determining their debt ratio before committing to more debt. The current formula to this equation is Debt Ratio = Total liabilities/Total Assets. The debt ratio should be compared to competitors and industry averages. Industries that have stable earnings can handle more debt than industries that have cyclical earnings. These are the evaluations business should have consistently in order to know what needs to be improved. If as a business owner, you are unsure of how much of incoming cash flow is used to pay liabilities each month -- than you are to far away from the reality of your business.
One of the key tools to improve this starts with implementing extensive policies and procedures. These procedures would be designed not only to ensure accuracy from the staff handling the day to day finances but used also as a great reference tool for management to understand more of the details with-out being hands on into the day to day details. It's never to late to get started with improvements -- choose to start yours today!
If you know of a business seeking to identify the allocation of their cash flow and/or improve current processes, Fontenot & Associates Solutions, LLC is here to support with their business needs.
“There’s lots of bad reasons to start a company. But there’s only one good, legitimate reason, and I think you know what it is: it’s to change the world.” – Phil Libin, CEO Evernote
My mission is to offer the best accounting and operations solutions and tips for entrepreneurs and small to mid-size companies worldwide seeking to close their process gaps with actual solutions.