To Improve Profitability — Be Smart About Debt

The way you handle debt affects your profitability.

Lack of financing can mean you are not able to increase your revenue because you can’t buy the products you need to sell.

Interest and penalties are expenses which lower your profits. There also is a clear trade-off between the amount of interest you pay and the amount of your loan payment. Let’s discuss this further.

Easy Monthly Payments

The term easy monthly payments usually means you will be paying a small amount of money each month for many months. The easy part is that the monthly amount is small. The longer it takes to pay off a loan the more interest you will pay. If instead of easy payments you made large payments, then you will pay the loan off quicker and you will pay less interest. Of course, if you pay less interest, you make more money. You improve your profitability by reducing your expenses and interest is an expense.

So why doesn’t everyone make large loan payments? You need cash flow to make larger payments. If your cash flow is not good, then you make smaller payments.

But if your cash flow is good, then easy monthly payments are a bad idea because you are increasing your interest expense and you don’t have to, you can afford the higher payments.