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© 2013
Gary E. Cooke II

Businesses can finance growth in many different ways. Debt financing is an option generally available to all sizes of business. Whether to finance the business through debt, however, is another question.

Many small businesses rely too heavily on debt and are unable to achieve beyond the founder growth because of the burdens debt places on the business' cash flow. Large businesses that use too much debt face similar long range cash flow burdens. The Enron bankruptcy shows the various machinations a business may try to hide from the debt burden.

Large businesses may also use debt to protect the company from unwanted takeovers. If the debt burden is too great the company may not be very attractive, but the company may bankrupt itself if it isn't very careful.

The evaluation of a business' financials can provide the owner with a picture of how much debt the business can reasonably support. While debt and interest payments effect the businesses Price/Earnings Ratio, the owner should also keep in mind the effect of debt on the Debt/Equity ratio of a business.

One example of too much debt negatively impacting a business is when the Internal Revenue Service decides that the debt is really a private investment and converts the debt to equity for tax purposes.

If you have questions about using debt and equity in your business, please feel free to contact Mr. Cooke at (312) 497-9002 or by email at "gc@Cookeslaw.com".

Mr. Cooke's fee is $300.00 per hour.