Posts Tagged ‘balance sheet management’

Are You Measuring the Right Things?

In business there seems to be an unlimited number of things to measure. But the question is, are you measuring the right things? Read the rest of this entry »

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Financial Literacy for Business Owners

If you are a business owner you may already be financially literate, but just how strong is that literacy? Even if you are there are likely some things your CFO, Controller, or in-house accountant can do to improve your understanding of your financial situation. On the other hand if you aren’t financially literate then these same people should be helping you to become so. Read the rest of this entry »

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Every Business Needs Accounting Done Right

Whether you’re a sole proprietor or a multi-employee small company, every business needs accounting done right. In the article Does a Part-time CFO Makes Sense? I touched on this issue, but let’s look a little deeper. Read the rest of this entry »

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Manage Your Liabilities to Increase Cash

While accounts receivable and inventory are two assets that can dramatically impact cash, it is important to consider liabilities as well. Read the rest of this entry »

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Excessive Inventory Can Be a Burden

This continues a series of posts focusing on how to manage cash and how managing assets, expenses, and liabilities impact it. Along with accounts receivable which I discussed in Read the rest of this entry »

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Debt Can Kill Growth

It is very common for companies to go into debt to finance growth. Is that always a good idea?

Debt-A Financial Demon

Many a person has purchased something like furniture on credit. Now, there is nothing inherently wrong with that, especially if they have ample income to make the monthly payments. However, many learn some very important lessons they hopefully will never forget. Perhaps after three or four months of making payments they realize how they hate making those payments. Not only that, these payments can restrict what they can do as the payments cannot be avoided, at least if they want to build and maintain a good credit rating. They may even find that the furniture they bought no longer looks as good to them as it did. But, this is just on the personal level. When it comes to business, debt can kill growth for similar reasons.

Servicing Debt

Servicing debt means making the agreed to payments of interest and principle. If cash flow is adequate this may not be difficult. But, if the total obligations that a company has for expenditures of any kind becomes excessive then a cash crisis can easily develop. When that happens the company may be surviving day-to-day. It’s easy to see why debt can kill growth. Any time a company considers taking on additional debt they need to ask a few fundamental questions, such as:

  • Will the cash generated be sufficient to cover payment?
  • What is the payback time for the debt?
  • If the debt is for something like equipment, how long will it take before they recover the cost through additional sales and profit?
  • Is there an alternative?

One example of how timing is an issue has to do with depreciation. Perhaps equipment is purchased using a three year note payable. If this equipment is depreciation over say five years then the depreciation deduction is insufficient during those three years of note payments to offset them. In that case the additional sales or efficiency the equipment contributes needs to be sufficient.

Some Key Things to Monitor

If you do find that your company needs to go into debt, be sure to consider a few key ratios, such as debt-to-equity, debt leverage ratio and debt coverage (see Debt Coverage). Since debt can kill growth, be certain you can justify it. One other thing to keep in mind is that anytime your company has debt it opens the door to additional pressure from outside the company.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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Lean Assets

You may have never heard the term lean assets. It’s really refers to both a mindset and assets. Here is what I mean by that.

Laying the Groundwork

This is really part of a series of articles intended to address having adequate cash to operate your business. Read the rest of this entry »

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Inventory Management Shortcut

Inventory can be one of the most difficult assets to manage. It doesn’t have to be this way if an inventory management shortcut is utilized. Read the rest of this entry »

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Where is the Cash?

Occasionally when I’ve first started with a new client I find myself wondering “where is the cash?” This is especially true when they are fairly profitable.

It’s There, But Where?

Unless there is theft, the cash is there somewhere. Unfortunately I’ve also seen situations Read the rest of this entry »

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Making the Best of Bad Financial Results

Is there are way for making the best of bad financial results? I think there is. In fact, sometimes bad results can be the catalyst for major improvement.

When Bad is Good

First let me say I’m not really suggesting that bad results are good. No, the good I’m referring to has to do with Read the rest of this entry »

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