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We are a small gift shop and owned by 5 women. Four out of five think we should be able to be paid as long as we are paying on our debt and one thinks we shouldn't be paid until our debt is paid.

2007-06-24 17:03:12 · 4 answers · asked by cathy p 1 in Business & Finance Small Business

4 answers

Would it be any help if I told you that all five of you are correct?

The real answer is that there is no one answer -- you have to decide how much you are willing to risk. If you can maintain inventory while keeping the bills and debts paid, you can do what you want to do -- but that path incurs more risk, and expense, compared to using potential pay to pay down the debt.

What, for instance, would parking lot or street construction do to your business if right in front of your business? You may want to see if either is planned by landlords or government before spending money you may later need. If you each pull $1,000 per month out as pay, that is $5,000 more that you will have to pay interest on both that month and EACH AND EVERY MONTH THEREAFTER until the debt is paid off.

You may also want to consider your insurance position before making a decision. Can you afford a fire, or would a fire force you all into personal bankruptcies?

What was the agreement before the business partnership required investment? It would hardly be fair to make one partner draw a salary now, if the agreement was not to do so until debts were paid, unless the four that wish to draw such salaries offer her the opportunity to let he continue as per previous agreement with the additional interest longer-term debt incurs, and the additional risk, falling on the four who are in a hurry to get paid.

We are enjoying good economic times right now. If it was me and I could afford it, I would let the money pay down the debt against shakier times. On the other hand, if your interest rate is low, inflation is likely to accelerate, so now is not a bad time to be in debt.

It all depends on how much risk you are willing to live with, and what is fair play to all involved based on the earlier agreement.

Hope that helps.

2007-06-24 17:27:21 · answer #1 · answered by Poetic 3 · 1 0

All 5 women need to agree on a compromise whereby:

a) The debt can be paid back comfortably, and preferably at an accelerated rate, and,
b) Payment can be drawn at a rate that the business can comfortably afford.

2007-06-25 00:41:38 · answer #2 · answered by Rolande de Haye 4 · 0 0

Do a budget with a cash flow analysis. Will your cash flow allow payments to the five owners while still being able to pay your other bills (including making your loan payment)? If so, it is certainly reasonable to pay salaries to all owners. Of course, you could also focus on paying the loan off early before deciding to pay salaries to all owners but that's a decision you all need to make (although it seems like most of you are leaning towards the salary payments).

2007-06-25 00:24:24 · answer #3 · answered by jamie5987 4 · 0 0

Do you have an accountant? Let him/her help figure this out.

2007-06-25 08:55:07 · answer #4 · answered by jdkilp 7 · 0 0

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