Why is capital gearing ratio important to business financing?

 

Business financing: Capital gearing.

This article first appeared on Ayi Post.

1. What is capital gearing?

2. Why is capital gearing ratio important to business?

3. Why is capital gearing ratio important to business financing?

Having a great business idea without a startup capital is like wandering a vast desert in search of an oasis. 

You are literally going to leap in when you see one. Then gulp down the water with all the impurities.

It’s wise to understand what capital gearing is before you decide to borrow or not to borrow to start your business.

What is capital gearing?

It’s a financial ratio that shows the amount of debt of a company to it’s equity. It’s a measure of financial risk. 

This risk increases toward volatility as the ratio of debt to equity gets higher.

The higher the gearing ratio, the more the interest payable on debt and the lower the earnings on equity. You may end up borrowing to service debt commitments.

The risk doesn’t end with sinking deeper into more debts, your control of the company could also be threatened.

Your creditors may want to teach you best ways to run your business profitably. 

This may come in the form of business partnership and so called, “business support”. In most cases, their way will not be on the same level with your vision.

Before you look to lenders for funding, have an amount of equity that would guarantee a lower capital gearing. 

Your capital gearing should be a ratio that keeps with you, the control and the freedom to be proactive and react quickly to evolving trends.

Only borrow when you’re certain you will have a positive leverage. 

That is, only when projections indicate that your earnings from the application of debt are going to be greater than interest payable on debt.

But should you even borrow to start a business? 

The answer is Yes. Debt financing is not a bad idea if you’ve sincerely mastered strategies that guarantee favorable returns on intended investment.

You must also be ready to work hard and proceed as if you were bootstrapping.

As a takeaway, keep the gearing ratio lower than 25 percent.

Is today a good time to invest in a CD?

 

Investing in CDs.

This article fist appeared here.

Personal financial advisors believe it is.

A recent news item on investopedia suggests that depositing money into a CD  may help to reach the goal of earning an extra $2,000 over the next 12 months.

The report further suggests that In the next 12 months, there’s a real possibility that the Fed will lower rates.

If that happens, CD and savings rates will follow suit and also drop. Locking in a high-paying CD now can help you enjoy 5.00% interest rates for longer, even if other rates drop. 

What is a Certificate of Deposit?

This article first appeared here.

A certificate of deposit (CD) is a savings account that pays a fixed interest rate on money deposited and held for an agreed period of time.

A withdrawal before agreed period attracts an early withdrawal penalty.

What are the things that make an investment in CDs attractive?

1. An investment in CD has low risk, is safe (if you open a CD with a bank that’s insured) and requires no monitoring.

2. A CD offers a fixed interest rate (Annual Percentage Yield-APY) that is usually higher that interests on other bank's traditional savings accounts.

Retirement savings v Emergency fund in uncertain economic times.

 

This article first appeared here.

Which  should be the priority in uncertain economic times? Retirement savings  or emergency fund?

When you’re nearing your retirement and you’re  working and living on a tight budget in  uncertain economic times, when future economic environment is unpredictable, it’s always going to be difficult to know which to prioritize between retirement savings and emergency fund.

The reality of life is, both are necessary.

It is necessary to set aside a stash of money to take care of income and  spending upsets.

No one prays for a job loss but it can’t be ruled out in uncertain economic times.

And in life, no one prays for unwanted expenses like a medical emergency, but it still happens.

So, an emergency fund is necessary.

 The regular contribution to  retirement savings is also necessary. 

Why is it necessary? 

70 years is the age of retirement from active service. 

You’re expected to bow out of active service when you clock 70 and depend on your retirement savings as your major source of income.

So since both are necessary to help reduce financial stress and avoid interruption to a lifestyle you are used to, you need to strike a balance.

How can this balance be achieved?

By working out a ratio that allows you to contribute regularly to reach the maximum level of your retirement savings and also have a cash reserve that’d cover at least, one year expenses on basic needs. 

This is a conservative approach.

You may decide to have a balance that suits your personal preference and career field.

Why is it important to trust each other?

 

We lose more by having the habit of not trusting until we have a reason than by choosing to trust first before a reason not to trust any more shows up.

Choosing the latter, yes, would lead to unpleasant consequences when those you trust for no reason disappoints. But at least, it would leave the doors to the heart on both ends open, until the heart finds someone trustworthy enough to keep.

On the contrary, choosing not trust at all until you have a reason to trust is sure going to make you suspicious of everyone you meet at the first time. 

The suspicion could also, lay the foundation to stereotype those who don’t fit into the culture of those you call, “mind”.

Suspicion and stereotyping have caused a lot of people to lose opportunities to make great friends and find great team mates to complete them and help them realize their dreams. 

It’s not easy for people with difficult-to-trust attitude to change and move in the opposite direction. Making the transition takes time.

This period of transition would have been saved and great relationships built if one had a trusting attitude. 

“Nothing is worth more than laughter.- Frida Kahlo.

“Nothing is worth more than laughter. It is strength to laugh and to abandon oneself, to be light.”– Frida Kahlo.

Laughter is the best medicine some claim. Is this true?

Does laughter improve your health?

Yes it does. Humor is the strength that lightens the burdens we all carry. How does laughter give us this strength?

It helps us to release anger, gives us the ability to forgive quickly and the reward is, the reduction of pains that in turn, protects us from the destructiveness of stress.

It’s almost practically impossible to go through the daily grind of life without facing life’s problems. At every turn and twist, we meet problems in our careers and relationships. These problems affect both our emotional and physical health.

Most of us, forget to use the strength that laughter offers us to overcome these problems, grow our careers, strengthen relationships and improve our health. 

Experts claim a good hearty laugh relieves physical tension and stress and leaves the muscles relaxed for up to 45 minutes after.

How does laughter do this?

Experts say that laughter increase infection-fighting antibodies and improve hormones which erect resistant walls against disease invasion. 

Laughter does more. Laughter opens the door and releases endorphins, the body’s natural feel-good chemicals, which relieve pain temporarily and improve the total sense of well-being. 

So, laughter improves your mental health and it improves your relationships with others. It improves your mood and makes your attractive to others. If laughter eases tension, gives you joy, makes you feel good and attracts great people to you, why don’t you learn to laugh more?

Laugh more and be filled with the illuminating ability to light up your path and the path of others. Problems will never end, as long as you are alive, but laughter can give you the strength to laugh at your problems and have a great happy life.

Going through rough times or having rough times? What is the difference?

Have you just experienced a loss of a loved one, a loss of a job or a loss of something so valuable to you and almost irreplaceable?  

Yes.

Then you should be going through a rough time right.

If the loss of a job is putting you through a financial hardship or, to an insufficient knowledge or skill is making it difficult for you to do something or accomplish a task, then you're having a rough time.

If you're going through a rough time, understand that it's part of life. And it's an opportunity for you to become stronger and better by taking the positives and discarding the negatives.

This is a fact because it's in tough times that people discover their full potential.

Leonardo Bonucci captures this beautifully,  "It is exactly in tough times when we discover our full potential, it allows our mind and body to push ourselves beyond our limits."

And never forget that,

"Tough times never last, but tough people do." - Robert H. Schuller.

So, no matter how tough the storms you are going through or facing are, keep holding onto the belief that they will pass and leave you better.

Afterall,

Storms make trees take deeper roots. - Dolly Parton

Life is just a tire swing” – Jimmy Buffett

 

Life is a tire swing,

while you are here,

expect to be down this moment,

backward the next, just hang in there,

because the tire is going to swing you up

and bring you back down.

No point is fixed, no destination is owned,

while the foolish traveller lives for tomorrow,

the wise traveller makes the best of every moment.