The Four Rights of borrowing or getting into debt for business purposes.
Within the question we should ask ourselves about borrowing there are a number of details we should consider.
1.The Right Reason.
- Is this for productive business and not for personal reasons?
- Will the things purchased with the loan make money imediately?
- How is using the loan better than saving the cash and buying later?
- Are all the the risks considered?
2.The Right Time.
- Have we been in business long enough to know our business well enough?
- How is this part of our business growth plan?
- Can we demonstrate that this will definitely improve sales and lead to growth?
- Will the purchased assets produce longer than the loan?
3.The Right Terms.
- Do we know multiple lending options?
- Do we know the true cost of the loan?
- Can we explain all the terms and conditions of the loan?
- Can we explain the pros and cons of each lender's offerings?
4.The Right Amount.
- Have we produces a cash flow statement?
- Will there still be surplus profit after meeting the payment obligations?
- If business does not pick up immediately can the payments still be made?
Nice job
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Wow..i appreciate this post...so nice..
Thank you @sme. I've been pondering on how to leverage debt to grow assets and produce cashflow. These questions are valuable, because they consider that accounting perspective..
Good post
You are very right sir, before anyone should think or decide to go into debt, he must have try all the possible means but if there is no solution at all he can then decide to go into debt.
The person must have candid reasons, I mean reasons that are audible to the ear, not going into debt for party partying sake, like who does that. Borrowing of money must be done at the right time, as in the person must have calculated the period or interval he will be able to repay the debt to avoid unnecessary issues.
Furthermore, you also stated that "the right terms" and "the right amount", yes this two are very important, don't ever think because the money is needed urgently then follow harsh terms, Never! The terms must favor both parties and I think the major point was stated last here, always borrow the right amount in the sense that always borrow the money you will be able to pay back.
I sincerely love this post @sme, God bless.
and is possible to back the amount after that time
Nice @sme
here is another scenario in which is makes sense to acquire debt:
Contractors are often paid with invoices that can take months to actually pay out, leaving them holding the bag for paying labor and material costs and leaving them without any money for the next project. Getting an invoice loan can allow them to get paid right away and get started on the next job and the rates are fairly low.
Very nice post and appriciate this post I like this thanks for share this