Let's Chat Liabilities: The Good, the Bad, and the Business-y
Liabilities. Did I make you cringe? It’s one of those intimidating financial words, but guess what? It's not all doom and gloom.
Hold on to your big girl panties because we're about to break down what liabilities mean for you, the creative genius. And I promise, by the end of this, you'll be dancing with joy, rather than running away from it!
WHAT EVEN IS A LIABILITY?
Alright, let's start with the basics. What's a liability? Well, in the simplest terms, a liability is something you owe. Yep, whether it's a loan you took out to buy that ultra-fancy printer for your graphic design business, or the credit card bill from buying supplies for your Etsy store, those are liabilities.
WHY LIABILITIES AREN'T NECESSARILY EVIL
Wait, don't go thinking that owing money is a terrible thing. Not all liabilities are bad; in fact, some can be super helpful!
Imagine you get a loan to open up a studio space. Now you've got a place to work, run workshops, and meet clients. That loan just helped you elevate your business game. It's a liability, sure, but it's also an investment in your creative empire!
When we use other people’s money to make investments into our business growth – this is good. These are INVESTMENTS and like most investments, they will one day pay us some kind of benefit.
Not so great liabilities are money that we borrow to simply survive. This is ok in the short term – to help with cashflow crunches, or to help out while you’re building up your business. However, if you’re in a situation where you’re constantly needing to use credit or your own (personal) bank account to get you through month to month, this could be a warning sign that there are bigger issues that need to be dealt with.
There are two flavors of liabilities: short-term & long-term.
SHORT-TERM LIABILITIES
These are the debts you need to pay off soon, like within a year. Think utility bills, credit card payments, and the cost of supplies you bought last month. You need to keep an eye on these, so they don't creep up on you. Some common short-term liabilities are:
Credit Cards
Lines of Credit
Accounts Payable – money that you OWE to your suppliers and vendors
Taxes – GST, Corporate, or Payroll taxes
LONG-TERM LIABILITIES
These are the biggies you pay off over a longer period, like a business loan, a car loan, or a mortgage for a workspace. These usually come with a repayment plan, so they're not as stressful, but they do require some long-term commitment. Liabilities here are things like:
Bank loans
Other loans – money that the business owes other people, like family, governments, other private entities
Due to/from – you might sometimes see this if you have multiple businesses; this is money that your different companies owe one another
Shareholder Loans – money that the business owes YOU or its other shareholders
LIABILITIES ARE PART OF THE GROWTH GAME
Don't sweat it if you've got some liabilities hanging around. Most businesses do, especially when they're in growth mode. The key is to manage them smartly. Make a plan to pay them off, and try not to take on more than you can handle.
Knowing your liabilities helps you paint a fuller picture of your business finances. It helps you answer questions like:
- Can I afford that new lens for my camera?
- Is it a good time to hire an assistant?
- Should I invest in that pricey software?
The answers to all these questions become clearer when you know what you owe and to whom.
So there you have it, my creative comrades! Liabilities aren't the boogeyman under your business bed. They're just part of the game—a game you're more than capable of winning. 🏆
Keep on creating, you financial rockstars!