Being on top of your financial position is the first step to effectively managing and protecting your assets. Maintaining adequate financial statements (income statements, balance sheets, statements of cash flows), will ensure that you understand the economic position you (or your firm) are in, and the risks associated with your leveraging capabilities. Accurately reporting and recording all assets will provide documentation establishing what your firm owns and what needs monitoring.
Liabilities must be in balance with your assets, or issues with liquidity will soon result. Through use of debt utilization ratios you can determine the firm's debt ratios and better recognize the financing obligations that must be met in order to maintain satisfactory performance. Payment obligations must be met in order to sustain company operations.
Lawsuits result when contracts are not fulfilled and close monitoring of all payment obligations is essential. If interest payments fail to be made, a company may increase long-term costs. Short and long-term planning must be used by astute managers--or a company will risk law suits, bankruptcy, or worse.
Articles of Partnership should be signed when entering a partnership agreement, to protect all parties from unjust liability. Depending on the size of your firm, there are many different organizations that can be created--determining the liability of the members in proportion to their initial investment or involvement. A corporation gives limited liability to stockholders--but also experiences double taxation. A Subchapter S corporation can override this double taxation, but it is important to determine what form of business organization your company can truly benefit from.
Understanding your company's mission and future goals, while maintaining and protecting essential assets, a company can protect itself from law suits and other unsuccessful operating results. Establishing an accurate sales forecast is essential to many company operations and can determine success in the long run.
Be sure to read up on Asset Protection since it is an extremely important part of your Real Estate Investing plan.
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