Additional Paid In Capital On The Cash Flow Statement Nobody Likes Paying Interest

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Nobody Likes Paying Interest

We totally understand that; Nobody likes paying interest, not even us. This is an emotional hot button for any business person when it comes to financing equipment or obtaining working capital. They feel like throwing this money in the air…or is it? Interest is the price you pay when you use someone else’s money to finance something. So why not eliminate the interest by paying cash? When business people say this to me I respond, “If you have unlimited cash or enough resources that paying cash won’t jeopardize the cash flow of your business, then go ahead”. I never argue this point because it is an emotional one. But the warning should be clear; It is not wise to pay cash for emergencies, market changes, market opportunities or something that reduces your ability to keep capital for expansion. If your market changes and sales slow, it may be difficult to go to your bank and get capital; This will not be easy because traditional lenders are not risk takers and lending to a declining business is “risky”.

Financing with interest allows you to preserve your capital and the longevity of your business. Of course finance payments make sense; It should fit into your monthly budget and the property should contribute to your bottom line in one way or another. It should make you money or save you money. A third contribution is harder to quantify which can be image and goodwill; If you are a custom interior kitchen retailer then investing in a modern showroom for your clients to view your products can be invaluable and you can get a high return on your investment but it is a bit difficult to put an exact figure. In any case, financial investments still need to be manageable within your budget.

While no one likes paying interest, it should be viewed as part of your return on investment calculation to ensure you’re making the most of your new equipment addition. How to get the lowest rate? Keep your personal FICO as high as possible and have it repaired by a service if you run into trouble, review your D&B business profile and make sure it’s accurate, create and document a payment plan if any tax liens exist. You’ve taken the right steps to address them and finally having your financial statements prepared by a service, bookkeeper or accountant shows that you’re organized and managing your business seriously. If managed properly in the long run, the finance you paid will pay you back in interest.

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