To Leverage or Not to Leverage?

Benefits of managing debt in your new business

Our last blog covered key points to consider when starting your own business. Today, we reveal the key questions we receive from those considering, or those that have just opened a new business.

What is an acceptable level of debt to have? How should my finances be managed to ensure the future growth of the business?

This depends largely on your industry, your personal financial situation and your tolerance to risk.

At a higher level, if the rate of growth of your business exceeds the cost of your ongoing debt commitments and debt is required to engage in projects that are necessary for growth, then debt can be a helpful way of kick starting the business.  A comprehensive analysis of your business capacity to borrow and service debt should be undertaken by your network of outstanding professional advisers.

Should I be paying myself? How much?

Your ability to stay motivated in any job may get a little compromised if you continue to pay yourself minimal wages or no wages at all.  It is understandable in the early years you may need to absorb some of the business costs but this needs to be balanced with keeping yourself happy to be engaged and working hard in your business.

What about super?

If you are sole trader there is no compulsion to make superannuation contributions.  Although we do not recommend you fall into the trap of believing your business will be your nest egg. Have a plan B for retirement and ensure that you are tucking away some superannuation just in case.

If you are employed by your own trust or company and receive wages there is likely to be a compulsory level of contribution that needs to be made by your business on your behalf.  This is the 9.25% Superannuation Guarantee Contribution (SGC).

Our answer!

When we receive one or more of these questions, we usually provide a copy of our document: “Leaving a Legacy, leading a family”. It’s filled with practical information that new and established business owners turn to for guidance when running a business and a family! For your copy, simply EMAIL or call us on 03 9077-2906 at it will be provided at no charge.

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