Good And Bad Debts In Business

Good And Bad Debts In Business

Who among us doesn’t have debts? Even for once in our lives, we have asked for someone to loan us a sum of money. In business, it is often the same. Some business owners loan money to put up their businesses; some for additional expenses that it incurs. No matter the reasons are, debt is part of our lives.

What is Debt?

According to the FreeDictionary: Debt is something owed, such as money, goods, or services; an obligation or liability to pay or render something to someone else; a condition of owing.

Debts have two types: Good and Bad.

Types of Debt

Good debt – a debt that helps you generate income and increase your net worth. A business’s good outcome is the main reason for this type of debt.

Bad debt – a debt that put no good for the business; it even depreciates your assets. A type of debt that you incur or purchase that will not benefit your business.

What’s the difference between the two?

It is how it affects the business. If the debt increases the net worth or has a future value then it is a good debt; if it doesn’t and you have to pay for it, it is bad debt.

Examples of Good Debt

Education

Regardless of the business you choose, even if you are an employee, an investment in education should essentially possess by an individual. The greater the education is the possibility of high earning potential. Education can put you in a good-paying job and will open many opportunities. Don’t think about the long journey you take; this is an investment that has a good return and can put you in a good career.

Loaning to put a small business

Putting up a small business is helpful in starting your career. You don’t have to worry about unemployment or waiting for your paycheck because your willingness and hard work will depend on your earnings; you are the boss.

Examples of Bad Debt

Automobile loans

Aside from cars are expensive, it is high maintenance. There are expenses that you have to incur in maintaining your car. Furthermore, purchasing a car is a waste of money, you often pay the interest only. There are times, our payment for the car loans only reduces the interest and not the principal amount. This is not a good investment as time will come that its value will depreciate.

Credit card loans

Like purchasing a car, credit cards, also have interests. In using this, you are paying more than you loaned, a waste of money on your behalf.

Life has no guarantee, and so does debt. From the examples given, like in education, it cannot merely provide you with wealth and success. Pushing yourself harder will help you gain it. You will experience many trials before reaching the top. The good thing about education it gives you an edge over the other; still, it will depend on your abilities and capabilities. Always remember that everything involves risk.

Financial Mistakes You Should Not Take For Granted When Starting a Business

Financial Mistakes You Should Not Take For Granted When Starting a Business

Did you know that starting up a business without a solid plan can make you lose all your money in a blink of an eye? Starting up a business is a serious and risky matter that can lead you being broke. Although a business may give a person the fulfilment of being successful or may help him reach his goals, there are still some factors to consider in planning one. As they say, “if you fail to plan, you plan to fail.”

Apart from that, financial matters that are often taken for granted are mostly the culprit of failed businesses. Making sure you are conscious of these financial mistakes may just help save your business.

Having said that, here are some mistakes that we should avoid to ensure that that the business that we will start will succeed

Failure to do a market research

A proper market research starts with understanding your own marketplace. It is the stage where you will identify your target consumers, recognize your competitors, and determine the consumer problems that may arise.

You have to determine what is lacking in that specific area so that you may be able to provide your customers what they need.

In return, you will have clients who patronize your business because they need you or your product. Remember, a failed marketplace is equivalent to a failed business.

Putting all your eggs in one basket

As we all should know by now, starting up a business is like a gamble. Putting all your money in one single bet is like playing 50/50, either you win it all or lose it all.
In the world of business, it is almost impossible that you will win all instantly, especially when you are just starting up. What we can do here is, look for an investment that is less-risky, or that is more in tune with your risk tolerance. It may take some time to grow but at least you are not risking all your resources.

Failure to analyze your cash flow

Understanding and managing your cash flow is an effective way of controlling the ins and outs of money in your business. You need to determine and prioritize where the money will go. You can either invest it, save it, spend it, or lose it. It’s up to you.

Failure in keeping up the records

Keeping up with all the necessary records may not be everybody’s favorite thing to do. But remember, money is your business’ life and soul. It is necessary to keep accurate and precise financial records for proper documentation of tax returns. It is vital since you need to understand where your money goes. This will surely save you from a lot headache in the future.

Performing a one-man job

We know that, as much as possible, you want to be hands-on in your business. However, you need to determine your strength and weaknesses, so you don’t end up trying to do everything.

You need to analyze where you are good at so that you can focus your time and energy in that specific area. Remember that you cannot do everything, it is better to focus on the things you are good at, and leave. Proper delegation is a key to a stress-free you and a functional business.

Hiring incompetent people

As what was mentioned above, proper delegation can help you focus more on the aspect of your business that needs your full attention.

However, you need to consider several factors when choosing who to delegate to, like the attitude, proper mindset, and reliability of that person. Invest in a skilful and reliable personnel.

A good way to start is to assess that person’s capability by giving a temporary assignment so you can gauge his/her skills. This will help you in determining if you can entrust your business to them and at the same time avoid the hassle of having to replace your personnel over and over.

Avoiding the frequent financial mistakes listed above will help you in saving tons of money and at the same time assist you in having a successful business.