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Debt financing by means of a personal credit card

Monday, October 11th, 2010

Most of us (together with me) have made use of personal credit cards to be able to pay for the beginning or expansion of our enterprise. It is easy, swift, and readily available. The interest levels could be less than business credit cards. And, you could have explored your company loans or lines of credit. Yet there are several risks in utilizing your individual credit cards to fund your enterprise, in place of employing business credit cards or credit.

It’s not possible to deduct the interest. In the event you mix private & firm charges on your credit card, it’s not possible to deduct the interest since a percentage of debt is caused by private payments. For anyone who is carrying a good degree of debt, this might soon add up to a lot of money monthly.

You are going to miss deductions. In case you are arbitrarily making use of private credit cards for enterprise bills, you are going to predictably neglect to enter all those invoices into your accounting system. Which means you are going to miss a tax deductions that you deserve to have.

You will end up on “the hook” for what is often the business’ debts. Should your business needs debt financing, the company (and its resources) must be in charge of repaying that debt financing, not your own personal resources. If you use private credit cards then you’re definitely personally accountable for the credit, even in the event something happens to the enterprise (you close it down, for instance).

You won’t precisely observe the true expenditures of the enterprise. If you are studying the profits & loss documents of your enterprise and generating your money circulation predictions for future months, you will need correct specifics of your historical bills. In case you have expenditures “hiding” as part of your private credit card records, you will not be able to examine if your enterprise is in fact making a good profit, or if your enterprise features financial issues.

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Make a reality check before a loan check

Sunday, May 23rd, 2010

164Our reality check should either reinforce the efficacy of our process or help us understand just where our process has broken down. We can learn to improve our planning in the first step. We can recommit to executing our plan better in the second step. Perhaps we should evaluate more frequently in the third step.What can we improve on? How can we do better? We study the results of our process, draw conclusions, and decide how we will act right now.What’s the best decision we can make at this moment?

Sometimes the action we should take is simply to abandon the activity. Suppose we discover that we do not play well together. This is the perfect time—before we have too much invested in the partnership—to acknowledge the fact, pick up our toys, and move on. Companies frequently find that their cultures or technologies are not as compatible as they thought they were. Rather than ontinuing down a path to nowhere, it’s best sometimes to acknowledge the fact and look for a new partner. This is a healthy sign of maturity and growth. Like couples dating, you learn something about your partner and, just as important, you learn something about yourself. You have just increased your Partnering Intelligence.

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Option value and volatility value of a credit

Wednesday, March 10th, 2010

Alternatively, the investor could wait another year (i.e. to maturity of the option), and observe where the stock price has gone. If the stock price has gone down to, say, US$ 80, he or she would be happy to have waited since a loss would have been avoided. If, on the other hand, the stock rose further to, say, US$ 130, the investor could still exercise the option and put down the strike price of US$ 100. If he or she had exercised earlier, a stock worth US$ 130 would be held. However, the later the strike price needs to paid, the more interest can be earned on that money. Therefore, also in this scenario, it was wiser to wait as long as possible, i.e. until maturity. It follows that a longer maturity is more valuable, i.e. results in a higher option price, even if the option cannot be exercised before maturity.

As just seen, the remaining time to maturity is valuable. Consequently, the option price must be worth more than the intrinsic value (i.e. the US$ 10 that are collected in the above example if exercised immediately). That additional value is related to time to maturity and volatility. Higher volatility makes it more valuable to wait and see, i.e. to have the chance of avoiding a large loss by not exercising early. This difference between the option value and its intrinsic value is thus often called the time or volatility value.

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What’s the intrinsic value of a loan

Wednesday, March 10th, 2010

The time to maturity is determined in the option contract. Generally, the longer the time to maturity, the more valuable is the option. The reason for this relation is straightforward for the American-style option: the holder of the option can always exercise the option prior to maturity. In addition, there is the possibility to wait and exercise the option at a later point in time. The longer the time to maturity, the greater is the value of the possibility to wait.

For European-style options, the relation of time to maturity and option price needs further explanation. A start is made by showing that an early exercise does not make much sense. Assume that an investor holds a call option with a strike at US$ 100 and a two-year maturity on a nondividend paying stock. The price of the underlying stock is currently at US$ 90. Obviously, an early exercise makes little sense, since the out-of-the money option would be worth zero immediately. Suppose the stock rises to US$ 110 over the next year. If the investor were to exercise the option now, he or she would need to put down US$ 100 (the strike price) and get the stock worth US$ 110. The difference between the actual stock price and the strike price of US$ 10 would have been gained, called the intrinsic value.

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You can seize the best payday loans opportunities

Tuesday, February 23rd, 2010

168You can seize the opportunities to develop trust by agreeing to initial activities. In the Initiate stage, you can work with your partner one step at a time to test and build your partnership.

As you gain more trust by demonstrating you can work together effectively, you enter the fourth stage, Commit. You’ll be able to make more commitments and thereby strengthen your partnership.

The success of a partnership depends on what is actually accomplished—not on what was intended or possible. As we define our expectations of each other in terms of a task, we also define the expectations in the relationship.We talk about our relationship in terms of the behavior that is acceptable.We also agree in a collaborative spirit to hold each other accountable. This is where the relationship issues involve our personal styles of handling conflict. If you’re not happy with the way I’m performing a task, what will you do about it? How will we discuss and resolve the issues?

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Assessing credit’s potential

Thursday, October 22nd, 2009

65Assessing the current and potential value of the target business means taking into account factors such as tangible and intangible assets, notably property and intellectual property, and the expertise of its personnel and the likelihood that they will remain. Investigate the target business’s management expertise and organisational culture: the way that the business is run and decisions are made, as well as its culture and values. Then assess what benefits these would bring and what difficulties they may cause in the integration process.

Assess what you might have to pay in order to win support from the target company’s (and your firm’s) shareholders and other interested parties. Work out who else’s support you need: key managers, the media, stockmarket analysts or whatever. All this affects the ease with which the company can be acquired as well as the depth of long-term support and cash that may be available for future developments, such as a process of costly restructuring.

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Succeeding with credit decisions

Thursday, October 15th, 2009

Mergers and acquisitions are increasingly important for many firms; this applies especially to medium and large undertakings and those operating in more than one market. In particular, liberalisation of trade and globalisation of business and financial markets have boosted activity in them. In 2001, merger activity reached a peak and then dropped dramatically as firms reacted to economic uncertainties and wild stockmarket fluctuations. Such cautious conservatism won’t last: an is such a potentially powerful route to growth and competitive advantage that as soon as economic confidence returns, so will mania. Even before then, plucky entrepreneurs and bold shareholders may see opportunities to pick up a bargain, such as a sound business that may have encountered short-term difficulties. However, problems are common following business mergers, with 48% of merged companies underperforming in their industry after three years, according to a 1997 report by Mercer Management Consulting. An enquiry conducted and published in the Harvard Business Review (November 1997) highlighted this point:

Fewer than 50% of mergers ever reach anywhere near the economic or strategic destination that was envisioned for
them. In fact, in many cases the mergers fail because the new company’s managers underestimated, ignored, or mishandled the integration tasks.

Anecdotal evidence from business analysts and commentators suggests that although this information is now some years old, it still holds true. Mergers are no more a guarantee of growth and prosperity today than they ever were.

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Learn to master credit decisions

Sunday, October 11th, 2009

Mastering international decisions can enhance every aspect of the organisation, exposing people to new ideas and approaches as well as gaining the commercial advantages of diversity. The risks are great but so too are the potential benefits. Consider the following issues before starting or reviewing international activities:

How well defined is the overall strategy for international growth?

What is the best approach (for example, joint venture, acquisition, licensing or some other commercial option), and have all possible options been considered?

What factors are driving growth internationally, internally (within the organisation) and externally?

What are the financial implications of this approach? Who is responsible for managing costs and risks, and how are these being monitored?

What is the single most important goal and how will this be achieved? Where is the single greatest risk and how is this being approached?

Every situation is different: what makes this one distinctive and why?

How will this strategy affect other aspects of the business and in particular key stakeholders (notably customers, employees, suppliers, shareholders)?

What level of performance would be satisfactory, leading to further investment? What are the success criteria, and are they really realistic?

Who is responsible for leading the international business?

What is the medium- to long-term plan that will ensure that the firm’s success can be sustained?

What activities are involved? Is there a detailed plan, and is there an understanding of the complexities of this decision?

Is there a need to restructure systems, such as communications and information management, to ensure that the organisation is fully integrated?

Has the decision been communicated? Are people informed and mobilised to succeed?

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Key Problems Concerning Credit

Wednesday, October 7th, 2009

Understanding people’s motivation and patterns of behaviour is fundamental for everyone involved in strategic decision-making.

Are people motivated?

A vital element in empowering people is ensuring that they understand and accept where the boundaries of their authority lie. Is this clear for everyone in the organisation, and are these boundaries in the right place?

Are safeguards in place with regard to the execution of financial, legal and regulatory decisions?

Are the following implications of reversal theory understood and used to guide decision-making?

The goal is not necessarily the most important thing – sometimes it is the means that drives decisions. – A decision may require conformity, or it may require a rebellious approach. The degree of control required for a decision to be effective can vary. Relationships matter when making decisions.

Are operational decisions effectively executed? How good is the organisation at delivering the details?

Are people in the organisation able to question established practice? Is the organisation sufficiently creative and supportive, or could this be improved?

Do people in the organisation work together to share ideas and solve problems, or does work need to be done to break down barriers and parochialism?

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Common Credit and Financial Issues

Friday, October 2nd, 2009

The commercial issues associated with any major new undertaking include:

Transfer pricing. The prices at which an organisation transfers goods between subsidiaries in different countries will affect local profitability and may have tax implications.

Exchange rate volatility. Changes in the value of currencies complicate cross-border business and can affect profitability. For firms operating within the euro zone, reducing this uncertainty is seen as a benefit of the single European currency. Firms can, of course, hedge their currency risks by buying and selling currencies forward, but the fewer currencies you have to work with the simpler is the administration.

Taxation and accounting differences, and legal and other local requirements. These will affect the way the business should be set up and managed.

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