How to keep your debt off the books

Sometimes going in debt can be necessary when trying to help a company grow. However, that debt can cause stocks to plummet and investors to disappear. The best way to make a company that is in debt look as if it is not in debt is to keep debt off the books. Creative businesses have invented many different ways to do this. Here are a few ideas that have proven effective in keeping debt off the books.

Lease Don't Buy

When a company is in debt, leasing a business space allows them to continue operating without incurring any more debt. This allows the company to build successfully without ever having to report and new debt. That is the key to keeping debt off the books, not accumulating more. Leasing will also allow a company to allocate funds toward paying off any existing debt.

Off-Balance-Sheet Financing

Some companies understand that incurring debt is essential to growth. It is like taking a step backward in order to make two forward. In order to keep their investors happy and their books debt free, they do what is called off-balance-sheet financing. There are a couple of ways to apply this method.

Joint Venturing

One method is joint venturing. This is where two companies take equity from their companies and join it together to form a type of partnership. The partnership is a new entity separate from either business. Companies form these partnerships for single projects and also to form permanent partnerships. The important thing is that they do not report any debt in their original businesses because the partnership is considered a separate entity, thus keeping investors happy and stocks strong.

Research and Development Partnerships

Research and development partnerships can be created similarly to a joint venture, except this partnership is made in order to create a new technology or method. Contracts are created in order define who will maintain what part of the technology or how it will be shared after the partnership is dissolved. Most importantly, this allows companies to join together to create technologies and avoid incurring debt that could scare off investors.

Operating Leases

Technology and equipment can be very expensive for a company to purchase without going into debt. Because it is so important to keep debt off the books, companies will often lease the equipment they need in order to stay debt free but still acquire the machinery or technology that they need to function effectively. One common office use of this method is when a company leases copiers. Instead of purchasing them, they lease the machine and pay a monthly fee, maintenance, ink, and paper. This allows the office to function, without having to purchase what could be a very expensive copier. For many smaller companies, leasing is often the best option while they repay business loans or seek to establish money for investment.

Companies have used a variety of methods in order to keep debt off the books. While many of these methods prove extremely effective in achieving this purpose, occasionally businesses will get a little too creative, crossing the line from legal methods to illegal methods. When creating partnerships and using off-balance-sheet financing, companies should make sure that they are inside the bounds of both federal and state laws. This will allow the company to keep debt off the books, maintain stock prices, and keep investors happy.

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