Debt planning for family asset planning

In asset planning, debt planning is given little attention. Proper debt can increase asset size, improve capital utilization, and expand profitability. Non-performing asset divestitures, debt restructuring, and especially strategic bankruptcy are all elements of debt planning.
One friend, from 2010 to 2016, acquired five suites in the U.S. using only credit cards as the underlying vehicle. Of course, there is the use of financial leverage and capital operation means, the key is to achieve the increase and appreciation of assets through reasonable debt.
Debt is analyzed and classified as good debt that can generate net cash flow, general debt that can maintain basic income and expenses, and non-performing debt that causes long-term losses. The different nature of debts are treated separately, and the corresponding laws and policies are followed to maximize the protection of existing assets and minimize the loss of assets.
In one client’s case, the size of family assets is about 800 million, of which about 600 million are business assets, about 200 million are property and financial investments, about 2 million are annual family expenses, and less than 1 million are family liabilities. In terms of non-operator assets, the asset-liability ratio is less than 0.5%, and the debt ratio is very unreasonable. The investment is mainly in real estate, bank finance and savings, which is also very unreasonable. This is a typical “industrial hero – financial idiot” type of entrepreneur, once the enterprise occurs policy risk or systemic risk, it will have a huge impact on the family.
Debt can be divided into short-term debt, medium-term debt and long-term debt according to the length of time. Reasonable deployment of various types of debt weighting ratio, improve the utilization rate of capital, fully use favorable resources, as far as possible to effectively avoid risk.
The phenomenon of “short term loan and long term investment” is common in enterprises, especially when enterprises borrow from banks for investment in fixed assets with long investment return period, high debt ratio or insufficient liquidity, enterprises have greater financial risks. Most of the failed enterprises have the problem of short loans and long investments, especially real estate enterprises.
Some enterprises are not investing in the wrong direction, but have already gone bankrupt before waiting for the expected profit, unfortunately. This is improper debt management in the time dimension, and there are also enterprises with unreasonable debt management in the spatial dimension as well.
Companies frequently invest in mergers and acquisitions, diversified layout, resulting in huge short-term debt pressure, once the bank policy tightened, the liquidity of funds fell, companies will face huge short-term repayment pressure, or even bankruptcy.
Debt planning is not only applicable to enterprises, but also to families and individuals. Debt planning is often combined with legal planning and tax planning, as well as investment planning. It focuses on the management of time and space, and is systematic and coordinated, individualized and diversified.