Plain and Simple: Bright Business Insights April 2016 | Page 6

DON’T SHY AWAY FROM BUSINESS DEBT
How Debt Could Be a Good Thing for Your Business
You know the satisfaction you feel when all of your debts have
been settled and any extra cash flowing into your bank account is
purely disposable income? Neither do I. But, contrary to popular
belief, if you are a business owner, carrying a little extra debt
could be a good thing – when handled strategically, carefully and
responsibly - and here’s why …
One of the most important jobs a business owner has is to prepare, monitor and analyze their company’s cash flow. As the single most important tool you have in your business’s arsenal, your
company’s cash flow (business income minus its cash payments)
provides you with an accurate way to measure its overall financial wellness.

Do You Know What You Need to Grow?

One of the most powerful ways to measure how well your company is doing is to monitor its projected/forecasted cash flow
while analyzing the business’s past financial information.
•

Your company’s projected/forecasted cash flow should provide you an educated prediction of your future cash income
and expenses. You can use this information to develop the
initiatives needed to ensure the long-term growth and sustainability of your business.

•

When you moni tor your company’s past cash flow you will
tap into the data needed to zero in on the business’s strengths
and weaknesses – effectively shining a light on processes,
products, services and strategies that are hindering your
company’s growth. Then you can act quickly to build upon
the objectives that work and eliminate those that hinder ongoing success.

Traditionally, companies with strong, positive cash flows are
those with proper pricing models in place, a healthy labor force,
controlled spending and active collections. (Notice that I didn’t
say that these companies were debt-free!)

Leverage Cash Flow, Leverage Your Debt

The word “debt” has a bad reputation. Yes, for many reasons,
living your life and managing your business “debt-free” can be
a great thing. But, especially in business, working exclusively
for the purpose of eliminating all debt can actually hinder you
from experiencing healthy, sustainable growth. For example, in
the quest to settle your company’s debts, you may be left with
an anemic savings account and little-to-no cash to jump on opportunities that arise and could potentially propel your company
to new heights. As a savvy business owner, you should always
anticipate changes that could positively and negatively impact
your business. The key is to leverage your company’s cash flow.
Here are two ways you can get started.

1. Take advantage of financing opportunities with favorable
interest rates. Oftentimes, especially if you have taken the
time to develop a strong relationship with a local financial
institution, you can secure financing at a very low interest
rate. This will allow you to take the cash that was not used
to finance your project and reinvest it in your outside investments in order to diversify your personal net worth, which
may provide you with a better return and decrease your overall business risk. For example, in the current market, if you
are able to finance new equipment for your company with an
interest rate of 4 percent, you are free to invest your own cash
in another investment vehicle, which could yield a return rate
greater than the interest charges you owe to the bank per your
financing agreement.
2. Utilize a line of credit. One of the best ways to invest in your
business is to make sure you have the cash on hand that will
allow you to take advantage of unforeseen opportunities. It’s
hard to predict when a strategic partnership or change in the
marketplace can open up a door that had previously remained
shut. But when it does, an open line of credit makes seizing
the opportunity possible while ensuring that your business’s
current operations remain unaffected.
If you practice strategic control over your business, make sure
you are giving your cash flow the same attention. To properly
leverage your company’s debt you must constantly monitor your
cash flow to ensure that these strategies make sense for you. Call
me to learn more about leveraging your cash flow and whether it
is the best move for your company.

by: Tom Jeffries

CPA, Principal
212 N. Washington Street
Millersburg, Ohio 44654
[phone]