Restructuring for a Better Financial Position?

Have you ever felt like when you take a step or put a foot forward, you move two or more steps backward? Most of us have experienced financial hardships a time or two in our lives or in our businesses. And we also all have experienced getting out of a financial rut, so to speak. But falling back into a financial hardship can be devastating, frustrating, and depressing. So, what can you do to help cut down on how many times these financial hardships occur?

There are a few financial concepts and principles that you can learn to help you professionally, as well as personally, as you restructure for a better financial position!

Credit Rating. Limiting your overall debt (risk) to less than 30% of your total assets will certainly give your credit score a boost. The further decrease in overall debt that an individual or organization goes, percentage-wise, the better. Increased investments in income-generating assets with higher returns than you or your organization's cost of capital will create long-term value, income, and a competitive advantage (professional or personal). If you can pay debt down to 20% or less, chances are you will enjoy favorable credit ratings and scores.

Return On Equity. Equity isn't just the stock market. Retained earnings is equity. So, an organization can increase their ROE by keeping their income (earnings) in the business from period-to-period. Whether it is on a week-to-week, month-to-month, year-to-year, etc. basis. Line-of-credit is considered equity too....until is used....then it becomes a liability (debt). However, maintaining and increasing equity can help an individual or organization improve their purchasing power. Some organizations use the strategy of building up there equity so it can be used to address any debt, minimizing the need to use cash-on-hand.

Little to No Debt. All debt is not bad debt. Good debt exists too. When a situation prevents an individual or organization from satisfying their debt obligations, then paying down debt with low principal amounts and/or high interest rates becomes an effective financial strategy. This approach can be applied to loans as well as credit cards. As mentioned earlier, credit card balances are a form of debt as the credit card holder is responsible to pay off their balance(s) from use of the line-of-credit. In some cases, good management that seeks low-interest rates and low principal debt can be just as good as no debt at all. Hence, good debt!

Increasing Income (Revenues). This can be TOUGH. While it is easy to say, it is a challenge in practice. Why? Because to increase income there are several things that could happen. An increase in sales (revenues) must occur. To increase sales, it is best if an organization has competence in their operations or their product/service offerings. Another tried and true method is cutting expenses. Cutting expenses leaves income on the table. These things can happen in sequence, simultaneously, or independently. Interest income derived from compounding interest is also another form of (increasing) income. Good savings account management habits allows from the accrual of compounding interest to contribute to higher savings amount which can be used or invested at any time.

Regular, consistent deposits. Weekly deposits will allow an organization to position themselves effectively with creditors. A general rule of thumb is to deposit at least twice per week. But, the more the merrier. In providing access to equity and debt capital, creditors love to see money being earned and deposited. For the performing organization, it shows commitment to increasing assets, which in turn, allows their retained earnings to increase on a stable or upwards trend. Withdrawals and increasing expenses, for sure, lets a creditor or investor see that the organization’s income is inconsistent, or their operations are not efficient. And, in their eyes in some cases, means financially unsustainable.

Making sure your financial position is a competitive advantage is critical to your professional and personal success! Be wise, be cautious, be intentional about repositioning or restructuring for a better financial position!

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Meet Nikia Smith, the Project Management Consultant driving success at Business and Wealth Generations. With over a decade of advisory expertise, Nikia orchestrates strategy and operations, spearheading growth and innovation. Beyond his professional endeavors, Nikia actively participates in his community, having served on the Board of Directors at the Project Management Institute Florida Suncoast Chapter in different roles for several years. Recognized for his contributions, he received the PMI Florida Suncoast Chapter Award in 2018 for significantly boosting membership and retention and was also selected to attend the 2019 PMI North America Leadership Institute Meeting in Philadelphia. Nikia holds a bachelor’s degree in management and organizational leadership with a concentration in Project Management, alongside several business certificates from St. Petersburg College. He is also certified in CAPM and PMP by the prestigious Project Management Institute. For collaboration opportunities, reach out to Nikia at info@thebusinesswg.com.