Liabilities - What You Owe

Liabilities are not always bad! They have gotten a bad rap. But the truth is, you can't have a successful business without at least a few liabilities. So what are they?

Liabilities are just what the business owes. They are also part of the Accounting Equation (assets = liabilities + equity). There are several types of liabilities.

The first type is current. These are any debts that will be paid off quickly, usually within a year. This includes wages, taxes, and accounts payable to vendors or overhead such as utilities.

There are also non-current liabilities. These are accounts that will take longer to pay off. These include loans and pensions for your employees.

And one type that many people don't think about much is contingent liabilities. Now, we are talking about money you may have to pay out in the future in certain circumstances. For example, if someone sues you for falling in your store, this would be a contingent liability.

Why do you need to know about this critical part of your finances? Because when you understand them, you account for them when making decisions in your business. You'll also be aware of them to ensure they get taken care of on time. Forgetting about them could prove to be costly and could end up in your business failing.