Saturday, May 1, 2010

Huge Notes to Stockholders

When was the last time you looked at your balance sheet? If you're like many, it has probably been quite a while.

Unfortunately, the first time many owners really take a serious look at their Balance Sheet is when the attempt to apply some valuation formula. Unfortunately, what they often see is a Net Worth line distorted by entries for "goodwill," "amortization," and notes payable or receivable from various officers and owners.

If you expect to sell your business be advised a buyer is not really going to be interested or willing to pay you back for all the money you have loaned the business. If the business has any value, it should have already done so or be in the process of doing so!

If the debt is owed to a finance institution or a leasing company then "yes" that has to be taken care of... it is a legal obligation and someone will have to pick it up. On the other hand, that $25,000 you loaned the company three years ago to keep it afloat is still on the books. It actually increases your company's net assets and thus net worth, but is it a real net asset?

One of the best things you can do is to recast your balance sheet in terms of ONLY tangible assets and liabilities. Then take a look at any personal notes payable and receivable and take care of these, even at the expense of paying them off before you take out a salary. Yes, you should be able to do both, but if you can only do one, clean up the balance sheet!



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