Thursday, March 31, 2011

How to Understand, Manage and Reduce Your Business Debt

By: Javi Calderon on Wednesday, November 10, 2010

The general public has a very black-and-white understanding of the word ‘debt’. After all, we were raised our whole lives to know that debt is bad. On a personal level, yes, you do not want to owe people money. It is very stressful and constricts your ability to live freely financially. However, from a business standpoint the ability to take on debt gives you the flexibility to spend money that you may not have in order to grow your business. As the old cliché goes, you have to spend money to make money.

Take the United States, for example. Our government is currently over 13 trillion dollars in debt! Yet the World Bank isn’t coming to Americans’ doorsteps and kicking them out of their homes, and we’re still living relatively prosperously. The key is having an income that can support the debt while also being able to put some away in savings. Business debt is a careful and precarious balancing act; the trick is to understand your business’ limits. Taking on too much debt can have absolutely catastrophic affects on your business.

To see where your business stands calculate your business’ debt-to-equity ratio. Take the total amount of debt you owe and divide it by the equity you own in your business. The lower the ratio the better, low ratios mean that your business can comfortably handle the amount of debt. Ideal ratios can vary greatly by market and industry, so research ideal debt to equity ratios for your industry before moving forward with any plans.

As you may expect, not all businesses experience debt as an asset. Many get trapped under a mountain of bills that strangle their ability to succeed, or even worse, force them to close their doors. When you have more debt than you can afford to pay, its time to start taking steps to reduce your debt before it suffocates your business.

5 Tips to Lowering Business Debt

1.   Creditors are not Your Enemy! When creditors come calling people often times try to hide from them in order to avoid confrontation. If you think about it, creditors are really more of an ally than an enemy. Their ideal is for you to be in sound financial standing so that you can pay them. They get nothing if you go out of business, so they are very willing to negotiate if it means receiving some payment from you instead of none at all. Reach out to your creditors and ask if you can negotiate a longer-term payment plan that will be more suitable for you. As long as you are paying them, they will be happy.

2.   Tighten Your Belt. Unfortunately, in times of financial trouble the most effective way to cut costs is to cut personnel. Look for areas that you can reduce spending or improve efficiency without affecting your products or services.

3.   Reorganize Your Assets.
Is there a building or piece of machinery that your business owns that you no longer use? Do you own investments or other properties? Sell, sell, sell to reduce your debt.

4.   Loans, Debt Consolidation, Debt Restructuring:
In dire circumstances it might be prudent to take out a business loan in order to pay off your debts. This way you can stop paying late fees and fines, be back in the green and have a little breathing room.

Business debt consolidation is the process of consolidating all your outstanding debts into one and then negotiating with your creditors to reach a reasonable payment plan.

Hiring a debt consolidation service to act on your behalf and negotiate a debt restructuring might be an effective use of your funds. The important thing is to get out of debt before it takes your business.

5.   Worst Case Scenario:
If you have exhausted your options and you still don’t see a way out from under your debt then you should file for Chapter 11 reorganization bankruptcy. Research all options exhaustedly before coming to this conclusion; filing for bankruptcy will have disastrous affects on your credit so try to avoid is at all costs.

Chapter 11 reorganization bankruptcy will freeze all your debts while you come up with a new plan of how to conduct business. You will have to find ways to reduce expenses and increase income in order to pay your creditors. Your creditors will then have to approve your new plan.
As you can see, business debt can either be the key to expansion and success, or it could consume your business and force you to shut down. Knowing how to manage debt and understanding your specific financial situation is the key to using debt properly.

Wednesday, March 30, 2011

LRCC Supports Snyder Tax Plan & International Crossing

The Lansing Regional Chamber of Commerce announced its support for Governor Rick Snyder's Tax Proposal and the New International Trade Crossing. 

"We believe our support for both of these important initiatives is one more piece of Governor Rick Snyder's plan to reinvent the State of Michigan," said Tim Daman, president & CEO of the Lansing Regional Chamber of Commerce. "The Chamber's mission is to support economic growth and sound public policy resulting in business investment and job creation."

Lansing Regional Chamber Backs Gov. Snyder's Tax Plan

The Lansing Regional Chamber of Commerce (LRCC) has come out in support of Governor Rick Snyder'stax reform proposals. Under the Governor's proposal, the Michigan Business Tax (MBT) would be replaced by a 6 percent corporate income tax on C corporations, a 4.25 percent fixed individual income tax rate, and eliminate several business tax exemptions and credits.

"We believe the Governor's plan is the best opportunity to create a strong competitive business climate that will lead to a long-term and sustainable economic climate in Michigan," said Kristin Beltzer, senior vice president for Government Relations and Public Affairs. "We must create an environment that encourages business expansion and unleashes the job-creating power of the private sector in our state."

Lansing Regional Chamber Supports International Trade Crossing

The Lansing Regional Chamber of Commerce is supporting the proposed New International Trade Crossing which will connect Detroit and Windsor, Ontario by creating a new border crossing over the Detroit River. The proposed $5 billion public/private project would assist Michigan in leveraging up to $2.2 billion in much needed federal transportation funding for roads, bridges and infrastructure improvements.

For more information on the LRCC's support click here.

Tuesday, March 29, 2011

How the Tragedy in Japan Impacts Small Businesses in the United States

By: Brent Barnhart on Sunday, March 20, 2011
The current situation in Japan as a result of the Tohoku earthquake and tsunami is a true tragedy, and with so much destruction and so many lives lost, it makes us wonder how long it’ll be until Japan is back on their feet. As we watch from the comfort of our own homes, we can’t help but ponder what we would do if we were forced into such a miserable position. While our hearts are with Japan as the country must endure this devastation, it’s inevitable that this storm will have an impact on our own shores.  The economic storm that small businesses may weather in the United States may be minuscule compared to that of Japan, but the potential impact is still very real. Disasters such as these are somber reminders of our need to prepare, as well as to always expect the unexpected.

How will the disaster impact the United States’ economy? Considering that exports to Japan represent only 5% of our total production, the initial impact perhaps won’t be as drastic as some might have thought. Regardless, many small businesses in the states are feeling the hurt, concerned for their Japanese clients as overall business in Japan has come to a standstill. Additionally, there could be a shortage of auto-parts as well as Japanese electronic goods. Businesses relying on such imports will have to wait it out in uncertainly, as it’s difficult to say how long the shortage may last.

The quake-tsunami is taking its most significant toll on Japan’s fishing and agricultural regions; thankfully the storm didn’t have nearly as much impact on Japan’s automotive and electronics production, which represent a much more significant chunk of their GDP.

Gas prices, which had been skyrocketing prior to the disaster, remain a large talking point. Due to the fact that Japanese business has come to a halt, it’s believed that their demand for gas may decrease in the short term. But as the country rebuilds and considers the loss of its nuclear resources, they may have no other choice than to turn to oil. This would inevitably lead to a rise in gas prices, which as of earlier this month; the Department of Energy predicted would average $3.70 per gallon in the United States during the summer.

In addition to economic awareness, the physical disaster behind the Tohoku earthquake and tsunami is increasing awareness for small businesses and how they may protect themselves. If your business was struck by a similar disaster, where would you be? While recovering from something like a hurricane or earthquake is often far from our minds, there’s certainly no harm in being prepared for the worst.

You can’t simply recover a crumbled building from the ashes, but there are some things you can do to have a backup plan in place. Online backup is one way to keep your business’ intellectual property and documentation safe in even the worst of disasters. Having disaster insurance is perhaps a more obvious solution to prepare, especially if you’re in an area prone to earthquakes, hurricanes, or other natural disasters.

While there’s no reason for businesses in the United States to panic in regards to the Japan’s tragedy impacting the United States, the future may tell a different story. Although it’s difficult for us to imagine or even comprehend tragedies such as what’s happened in Japan, there are a number of steps you can take to increase your awareness and make sure that your small business is kept safe.

Is the United States Going Broke?

By: Brent Barnhart on Thursday, March 24, 2011
“We’re broke,” John Boehner said last February during a speech in Nashville regarding the United States’ current financial status. “Broke going on bankrupt.” These bold words from the Speaker of the House seemingly affirm the fears of many Americans as the United States quickly approaches its $14.3 trillion debt ceiling. Such monumental debt raises plenty of questions about what President Obama can and will do next to put the country back where it needs to be financially. Yet the question remains; are we really going broke?

Depends on who you ask.

Yes, we’re going broke. Currently, debt held by the public combined with debt held within the federal government exceeds $14.1 trillion. Roughly $9 trillion of the aforementioned debt belongs to the public, representing debt that is owned by individuals, companies, and governments outside of the federal government. The remainder of the United States’ debt is essentially debt that the government owes itself, whether it’s owed to Social Security (amassing $2.6 trillion worth of debt by itself) or any of the other dozens of government “trust funds.” The grand total comes to roughly $14.1 trillion. Such a number is obviously huge and nearly impossible to comprehend, isn’t it?
But it doesn’t stop there. There’s an additional, often overlooked category of debt which Cato Institute writer Michael Tanner describes as “implicit debt.” This debt represents the “unfunded obligations” of programs like Social Security and Medicare in which the benefits of the programs are not legally guaranteed, and therefore represent the “softest form” of American debt. Tanner calculates that Social Security’s unfunded obligations now run more than $16.1 trillion, meanwhile Medicare faces obligations of up to $89.1 trillion. Taking this into consideration, our national debt of $14.1 trillion quickly jumps to $119.5. Can we even to begin to comprehend such an amount, which Tanner points out is over 900% of our GDP?  “Maybe President Obama will figure out how to turn lead into gold,” Tanner says. “But I don’t think we should make public policy on that basis.”

Case closed. We’re broke. Right?

Remember, it depends on who you ask. In the wake of so much gloom and doom, there’s an equally passionate notion that the country is just fine. But considering the information stated above, how could there possibly be such a case? The fact that the federal government is able to borrow funds at incredibly low interest rates appears to be a point in the United States’ favor, but the general public doesn’t seem too keen on the notion of the country constantly borrowing from China. How about a long-term solution?

A long term solution exists, theoretically, in the form of raising taxes. Michael Linden of the Center for American Progress points out that the United States is “an extremely low-tax country compared to other economically advanced countries.” Linden also believes that we’re not broke. Far from it, he says.

Based on information compiled over the past five years, the United States ranked 29th of 33 member countries of the OECD (Organization for Economic Cooperation and Development) in total tax revenues. Linden proposes that raising taxes to the level of a country such as Canada (ranked 22nd in OECD’s list of total tax revenues, seven places above the United States), we could see a balanced budget as early as 2015. There’s much to take into consideration with such projections, though, as they are theoretical. Both taxing ourselves further and borrowing more and more seem like unfavorable options for the country, but perhaps it's our only option. Linden stresses that “the government is meeting all of its obligations” financially, and on the other side, Tanner questions how much longer China will continue to let us borrow as they question our creditworthiness.

What’s the answer to our debt problems? It’s up in the air. Who’s going to solve it? It’s up in the air. Are we broke? The answer seems to be both yes and no, but the fact that we certainly have a problem is indisputable and the American small business community is worried. Only time will tell how the country goes about solving its debt crisis, but with the debt ceiling looming over us, it appears that time’s almost up.