Beauty Store Business

SEP 2018

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48 September 2018 | beautystorebusiness.com The job of calculating the debts and liabilities that must be charged against your business assets may not be fun, and it involves a bit of work, but it provides an essential dose of reality. Here is a reminder of some of the liabilities that your business may have: Credit Card Debt: Almost everybody uses credit cards, so your Visa or Mastercard balance is nearly guaranteed to be part of the total debt obligations of your business. Other Charge Accounts: If you have any charge accounts with vendors, suppliers or other businesses, these balances must be included as part of your total liabilities. Payroll Obligations: Unpaid wages, if any, are a part of your total debt load. Outstanding Loans: Until you list them on paper or in your computer, you may not realize how fast they add up. In this category are auto loans, business renovation or expansion loans and inventory purchases on credit. Outstanding Bills: Don't forget those outstanding bills sitting in a drawer. This category includes unpaid workers' compensation insurance, rent, business insurance, life insurance, medical insurance, auto insurance and utility bills. Unpaid Taxes: Among the easiest to forget when calculating total debts and liabilities are unpaid taxes. Depending on where you live, this includes not only federal and state income tax bills or estimates due but also state real estate and personal property taxes as well as city, county and other local taxes. Never forget that unpaid taxes run the risk of government intervention. Governments have the authority to seize your assets– including bank accounts and even personal assets such as your house or your car. Mortgage: If you have purchased a building for your business, there is that debt to consider. Even though a mortgage is secured with the value of the building, it is still a debt and requires monthly servicing. Keep an accurate account of how much has been paid off, what's owed and how much equity you have in your building at all times. TRACKING YOUR DEBT You have to total up all of these and any other debts to provide an exact picture of your debt load. Good accounting software is vital. Without it, or a computerized spreadsheet, the job of keeping track of your debts regularly may take more time than you're willing to spend. Once you have added up all of your outstanding debts and the status of each one, you'll know 1) whether your debts are under careful control or 2) whether you have a debt load that is spiraling out of control to the point of endangering the future of your business. If you find your business to be much deeper in debt than you imagined, there is no need for alarm–just understand that there are steps you must take to get that debt load back under control. If your debts are growing, resulting in overdue payments, it's time to take immediate action. Keep in mind that with a sole proprietor or partnership, you could be held personally liable for business debts–meaning that creditors could seize your assets. This is one reason for forming a corporation, which offers some protection against this possibility. Obviously, the sensible way to avoid the catastrophic effects of overspending your limits is to start with strict personal discipline in the use of credit and credit cards. By never spending more than you can pay off when the bill arrives, you'll separate yourself from the crowd. Of course, there may be times when circumstances call for making a large expenditure for a critical business need. In such a case, carrying a debt for a specific time is quite acceptable, provided your overall debt load is under control and you have a specific plan for paying it off. However, if you have a history of debt problems, you may want to reconsider your plan. THE KEYS TO FINANCIAL SUCCESS Failure to keep payments up to date on all debts can result in irreparable damage to your business. Even one court action by a creditor can result in unrest among your employees, and limitations on your credit from suppliers. Debt management is not a passive responsibility. It requires consistent attention and action on your part. Whether your debt load is heavier than you'd like or within reasonable limits, these tips will help you to take and remain in control of your spending. Business vs. Personal Finance: While there may be times when it seems convenient to handle a business transaction with personal money, or vice versa, this is a serious mistake. It not only creates problems keeping finances separate but also makes both your accountant and the IRS very unhappy. Don't do it. Credit Card Debt: Arguably, there is no more dramatic illustration of the destructive potential of unmanaged debt than today's use of credit cards. "Just charge it" is the anthem of credit card issuers, who are happy to lend their money knowing full well that a large percentage of buyers will be drawn into their highly profitable "minimum amount due" trap. Any business owner carrying a large balance on a credit card has almost certainly been lured into the ploy. By overspending and paying only the minimum amount due each month, these unfortunate victims take on the burden of an average interest rate that runs in the mid-to-high teens or higher at any given time. That combination of a high balance and high interest rates can produce a perfect storm of unmanageable debt that is extremely difficult to escape. The obvious lesson: The only rational way to use credit cards is to spend no more than what you can pay off in full every month. For many people, that advice comes too late. Once you're saddled with credit card and other types of debt, strong debt management medicine is the only cure. Stop further credit card purchases–and cut out unnecessary spending entirely. Pay down the balances on credit cards Checking exactly what your debt load is on a regular basis provides the foundation for taking control of those debts. ARE YOU A COMPULSIVE DEBTOR? Business owners may find themselves in debt due to a compulsive debting problem. The nonprofit organization Debtors Anonymous provides the following list of experiences and behaviors to help business owners identify if they have a compulsive debting problem. ❯ We neither knew when bills or taxes were due, nor did we remember if and what we had paid or still owed. ❯ We confused our personal finances with our business finances. ❯ We often did not know the exact costs of our overhead, operating expenses or profit margins. ❯ We had no business plan. ❯ We lived in a state of deprivation for the sake of our business. ❯ We undervalued and underpriced our goods and services. To learn more, visit debtorsanonymous.org.

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