As a business owner, you more than likely know that you are going to have debt of some kind to keep things moving. When it comes to debt, there are two different kinds, good and bad. Since not all debts are created equal, knowing what kind of debt you have can help keep your business above water. Principle Insolvency is here to talk about the difference between good debt and bad debt so that business owners can make better decisions whenever they consider taking on additional debt.
Good Debt
When you have debt that is helping grow your profit, that is what is considered to be good debt. For instance, the mortgage on a piece of property would be considered good debt because the value is constantly growing even though you’re paying for it over time. You might even find yourself taking out a loan that is needed to help you grow your business. You just want to make sure that any debt that you take on is earning your positive returns. If you go into debt on something that can help produce revenue, it is also considered good debt. This could be debt in the form of equipment or something similar. You need to also make sure that it comes with a payment that you can easily afford.
Bad Debt
If you have debt that isn’t working for you, it is bad debt. This would include debt like credit card debt and debt that won’t generate any income for you. These rules about debt can help determine the debt that you have is bad debt:
– This type of debt only costs you money and doesn’t generate any income for you.
– Bad debt doesn’t help your business grow in any way.
– When you are barely able to make the payments on this debt, and the payment is a burden, it isn’t good debt.
What to Remember About Debt
As a business owner, it it’s important to understand that you are more than likely going to have to go into some sort of debt to keep your business alive and thriving. However, be wary whenever you go into debt to ensure that the debt is good debt and will work to generate income for you. Businesses that are riddled with bad debt often end up moving toward insolvency rather than success. It is a good idea complete debt audits on a regular basis to make sure that you’re business is in a healthy place. This is a good way to uncover bad debt that you don’t realize you have. It can also give you a good understanding of just how much debt you have as a business.
Insolvency Services in Auckland, Hamilton, Levin & New Zealand Wide
If your business is in trouble and you’re moving toward insolvency, you can turn to Principle Insolvency to help you take action and save your business. Call us today!