Decision Making

Our Attitudes Towards Debt Have Changed

Warren Buffet recently quoted his partner Charlie Munger:  “There are three ways to go broke: “liquor, ladies and leverage”. For me, I know almost nothing of liquor and will not comment on the ladies. The rest of this article talks about leverage and our relationship with debt as a society. The public acceptance of the use of debt has evolved over time. I am reminded of my Great-Grandmother Marie who was an immigrant from Emden, Germany to Chicago in the 19th century. Her family lived in what is now the posh Chicago neighborhood of Lincoln Park. Back then it was…

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Decision Making

When Should You Use Debt In Your Business?

After discussing the good and points of debt generally, here are some specific points about when to use debt financing and how to assess the risk. If you have financial skills, create a cash flow model on a spreadsheet and calculate the impact of the additional expense of making the loan payments. This will force you to look closely at your expenses and revenues. And estimate the likelihood of being able to pay off the loan. If you don’t know how to calculate this yourself, then bring in a financial advisor.  Not all CPAs know how to do this accurately…

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Decision Making

Debt is Both Good and Bad

I’ve been thinking about debt and leverage after reading the Warren Buffet (Berkshire Hathaway) shareholder letter. For individuals debt can be dangerous. It is easy for consumers to rack up debt in part due to the ceaseless marketing of credit solicitations. This includes everything from credit cards to unnecessary and ill-advised student loan debt. Some consumer debt may be unavoidable but much of it is discretionary. Self-discipline is advisable. The consumer should never allow debt levels to become so high that it closes off options and opportunities such as changing jobs, getting married, and so on. On the other hand,…

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Decision Making, Exit Planning, Tax

Why is an Asset Protection Strategy Critical for Your Business?

Most business owners that I meet are surprised to learn that just because they operate their business as an incorporated entity (S-corp or C-corp) or an LLC, their business and personal assets are NOT “automatically” and “fully” protected from business or personal litigation. Ignorance is bliss, getting a hard reality check from the hungry litigators in an overpopulated legal system is a difficult lesson to learn. Take note – if you’re not prepared – the legal system can be brutal and unforgiving. We get too many phone calls from business owners who are facing litigation from an event that’s already…

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Decision Making, Exit Planning

How To Calculate If Your Retirement is Fully Funded

What does “fully funded” mean? It means you have enough money to provide the retirement you want to have for the length of time you need it to last. I talked about this topic in an earlier post though in a more general way.  This article points to some of the specific techniques you can use to know the answer to the above question. It doesn’t give the mathematical detail on how to do it, but simply the direction. I said mathematical because at its core this is a calculation. As with all calculations forecasting the future, the results are…

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Decision Making, Exit Planning

How Much Money Do You Need to Retire?

A very critical part of an Exit Plan is determining how much money you need to retire. Or another way to ask the question is how long the money you have now will last given your current spending and goals. Money may not buy happiness but it can buy freedom and security. And those two things contribute significantly to being happy. Money also reduces being sad, according to academic research. Perhaps because having it gives a sense of control over your life and who doesn’t want that? Money is a difficult subject for most people to talk about. It is…

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Culture and Ethics, Decision Making

Can You Succeed Being in Business With Your Spouse?

I’ve seen hundreds and hundreds of privately held, family businesses over the years. Many are jointly and successfully run by a husband and wife team. A husband/wife management team adds a layer of complexity over and above the normal issues of business management. The effect of that complexity depends on several factors, that my team and I have noticed. How well does the couple get along outside of the office? Do they cooperate and collaborate on their home life? Their financial life? Does one of the spouses hide information and make important decisions without the others’ knowledge and consent? If…

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