Managing Your Business' Debt

As an owner of two businesses, Lacerte says he is constantly inundated with credit card offers for working capital and lines of credit, many from large banking institutions. "The bank is not [conducting] any financial analysis on the business' financials," he says. "They just go by the creditworthiness of the firm based on its past bill-paying experience. They're not looking at the real worth of the business and the ongoing ability to pay off that debt.

"In the old days, a commercial loan officer would do a credit analysis. [Today,] I see small businesses not even doing seven figures in revenue [being] offered a $100,000 credit line just like that," Lacerte says.

To avoid these and other credit pitfalls, it's up to you to get the financial facts on your business and make sound borrowing decisions. Unfortunately, many entrepreneurs fail to recognize how important financial analysis is to running a successful business. Even business owners who receive detailed financial statements from their accountants often do not take advantage of the valuable information contained in the documents.

Even though getting a handle on these things might seem like an intimidating task, not having an accounting degree is no excuse, says Lacerte, who is developing a Web-based subscription service to let business owners submit their financial information to compare it with key industry benchmarks. "With QuickBooks and [other kinds of] available software, [business owners] can extract the information they need," he says. "It's just a little educational process to understand what those ratios mean and let them be warning signs that they're going to get themselves into trouble."