In the early days of building a business it can be difficult to avoid personal guarantees. But as you grow and become more successful, you have more leverage, and more reason, to purposefully begin reducing your personal guarantees.
Most businesses are run inside a legal entity like a corporation or limited liability company (LLC) in order to provide some liability protection for its owners. Legal entities have assets and liabilities separate and apart from those who own the entities.
A personal guarantee is you agreeing to take personal responsibility as an owner for a specific debt or obligation of the business. So, if the company goes under, or fails to pay the obligation, you are personally responsible to make the payment.
Most entrepreneurs and business owners rarely consider how much they have personally guaranteed. And they are shocked at the total dollar amount they are personally responsible for. One reason the number is so surprising, and so big, is because the guarantees have occurred over a number of years as the business has grown.
You finance some new equipment and the loan requires you to sign a personal guarantee. You sign a new lease or renew an agreement with an important supplier and a personal guarantee is part of the deal.
Over time, as your business grows, the number and amount of obligations you’ve guaranteed goes up. But as you grow your business and become more successful, it’s wise to think more strategically and thoughtfully about how you handle personal guarantees.
Quantify Your Personal Guarantees
You do that in two ways. First, quantify the amount of your existing guarantees. Here is a format to help you list and quantify your existing personal guarantees.
Second, slowly begin reducing the number of guarantees. One of the best places to start is to refuse to sign any new vendor or supplier guarantees. Most vendors put the guarantee on their credit form but that doesn’t mean you have to sign it. They will almost always set up credit with the business as the only responsible party.
Philip Campbell is an experienced financial officer, investor, and author of the book A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow and the book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore. He is also the author of a number of online courses including Understanding Your Cash Flow – In Less Than 10 Minutes. His books, articles, blog and online courses provide an easy-to-understand, step-by-step guide for entrepreneurs and business owners who want to create financial health, wealth, and freedom in business.
Philip’s 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.
This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.
Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.
A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.
What if you had answers to questions like:
What’s about to happen to my profitability and cash flow?
How much cash can we distribute to the owners of the business?
How long will it take to pay off our debt?
What will our taxable income be this year?
A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.
Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.
If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.