Debt management critical for any small business
Maintaining a good debt-to-income ratio is important for keeping debt manageable, but it is even more important for business owners, Josh Tajchman said.
“We want to run a successful business,” he said. “Being on top of your finances is a huge part of that.”
County residents as a whole are good at managing credit card debt relative to income and wealth, with $2,217 of credit card debt per capita according to a survey from SmartAsset.
Marion County is the second best county in Kansas at managing credit card debt as a percentage of wealth, at 5.4%, and 8.7% when comparing debt to income, according to the survey.
Business and personal money management heavily influence one another, said Tajchman, who owns Taco’s Food Truck.
“If you go for any type of credit, even with the business, they’re still running all your personal information,” he said. “You can get business loans and business lines of credit, but it all reverts back to you as a person.”
The goal is to have debt-to-income ratio between 36% and 40%, while anything above 40% is considered high, said Jessie Wiebe of Hillsboro State Bank.
“That’s the key to debt management,” she said. “It doesn’t mean you can’t get a loan, but the price you pay for that loan is going to be substantially greater than someone who has good credit or low debt-to-income.”
Tajchman said he had fewer expenses operating a food truck than he would have owning or renting a building.
“I had a smaller overhead than a brick-and-mortar restaurant,” he said. “If you wanted to open a physical restaurant, you’d probably have to attain some business loans.”
Being able to access accounts online makes financial management that much easier, Tajchman said.
“It doesn’t restrict someone like me from being able to run my business successfully with a business checking and business credit card,” he said.
Tajchman uses different banks for his personal and business finances, which help him keep them separate.
“It’s a lot easier to track spending when you have your accounts separate like that,” he said.
Easy credit is often a disadvantage for young people who quickly end up overextended, Wiebe said.
“I’d be surprised if debt-to-income was low on average because of the ease of getting credit these days,” she said. “Young kids don’t realize what that can do to them in the future, and how quickly credit card debt can get them in trouble.”
Making more than minimum payments is important when paying off debt, Wiebe said.
“That’s what I would consider managing debt,” she said. “Make sure you don’t have debt out there that you’re paying on, that you have nothing to show for it and no assets once it’s paid for.”
Last modified Nov. 6, 2019