Pat Dickson

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As you know, I have touted my ASUS laptop by making the claim it is a miracle machine for business travel, at least when it comes to performance, reliability, and durability. 

In my first article praising my ASUS laptop back in July 2012, in summary, I told how I had bought it at Best Buy for around $600, published the screen shot of its system specs, and even admitted that it had a drawback, in that the video card wasn't quite what I needed for gaming.

Nevertheless, having a computer that lacks high end gaming capacity is a bonus for me. Computer gaming is an addiction and time sink I'm rather prone to picking up in the bad habits department. However, despite the gaming limitation, the computer had no problem with the video I really needed. It ran anything on YouTube, including mpegs I needed to open from Gmail, just fine.

My ASUS laptop did what I wanted it to do, and it did it well. It seamlessly connected to WiFi, booted up quickly, and never crashed. It ran Explorer and Google Chrome and Firefox and handled Microsoft Office without a problem. Word, Excel, and PowerPoint ran smoothly, even when a lot of data or multiple open windows were involved. Finally, I boasted that I've dropped my ASUS laptop, banged it around, and even stepped on it.

So here I am 6 months later, and in review, my opinion of my Asus laptop has not changed. In fact, I love it even more. Still it has not crashed one time, and still it continues to never fail me, even though my abuse of it has not improved. I have added to its torture spilling drinks on it, all over the keyboard, as well as dropping it from about 5 feet straight onto asphalt. 

That's right! Recently I had been visiting a client on site, and when I was leaving I threw my ASUS laptop (in its case) over my shoulder. I had made the mistake of failing to zip the carrying case up so my poor laptop went crashing down onto the asphalt. It rolled on its corners like a wheel and came to a hard stop. The plastic around the screen was cracked apart and there was a big chip on the corner, to the bottom right of the keyboard. This computer is done, I thought, as I snapped it back together and dusted it off.

I was certain my ASUS laptop was finished, but when I took her home and hit the on button, she proved the chip on her corner was the only damage she had suffered. We got to work right away by quickly opening up a spreadsheet with 78,000+ lines and doing some impressive pivot tables.

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I've recently written about personal guarantys from both sides of the fence.

On the one hand, if you are an individual working at a company (or even an owner for that matter), you don't want to sign a personal guaranty on your company's behalf, else you could end up personally liable for its debts. In some cases, as an owner or stakeholder you don't have any other option. If you don't personally sign, you can't get payment terms. 

On the other hand, if you are a service provider or sell materials or products, you don't want to give payment terms to any commercial customer that is a credit risk. You want a personal guaranty so you don't end up with nothing in the event the customer goes belly up. You aren't in the business of giving away your goods and services. You are a for profit business, not a charity. If the business you are serving might not pay you, you want the promise from a person who will pay you.

But enough about personal guarantees for now. Personal guarantys are only a part of the picture, as they are really nothing more than a safety net in the event your commercial customer can't pay you when payment is due. There is a bigger question, which is really the first question you should ask before giving anyone credit or payment terms:

The First Question is: Is My Customer Credit Worthy?

Ultimately, your primary goal is to avoid financial risk. You want cash up front if you are dealing with a potential deadbeat. If you are going to give anyone payment terms or credit of any kind, you want to make sure they are going to be able to pay you when payment is due.

There are two ways to secure a promise to pay, in the event you offer payment terms:

First, you have your customer fill out and sign a Credit Application. This document asks your customer a number of questions about his credit worthiness, and at the end of it he signs on the dotted line. By doing so, he is agreeing that his business will pay you should you agree to give him payment terms or credit.

Second, as a matter of course, or if you are not satisfied with what is disclosed in the Credit Application, you will want to obtain a personal guarantee. You want an individual on the hook in the event the commercial customer at hand files bankruptcy or otherwise becomes a deadbeat.

But remember, Credit Applications and Personal Guarantys are just documents. They don't guarantee you will be paid just because someone signs on the dotted line at the end. The most important thing to know is whether the company signing the Credit Application (via its officers, owners, or employees), or the individual signing the personal guaranty on behalf of the company is credit worthy. 

In other words, signatures on paper are nice and look formal and all, but are you going to be paid when payment is due? Does the company signing the Credit Application, or the individual signing the personal guarantee, have any money? If they aren't cash rich, do they have the credit needed to pay you? Do they have substantial unencumbered assets? Do they have a history of non payment?

The good news is that I've already written an article about doing credit evaluations! I did so in the context of a construction subcontractor evaluating the credit worthiness of a construction general contractor. Read the article and you'll find that most of what I recommend will work for evaluating the credit worthiness of your customers.

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Should you ever sign a
Personal Guaranty? No!

One of the most common mistakes business owners, officers, managers and employees make is that of signing a personal guaranty. Don't do it. It seems innocuous, but it isn't.

The personal guaranty is part of a very common scenario. You are trying to set up terms with a vendor so you can order product or materials.

As a matter of course, the vendor emails you a form to fill out, sign, and email back to him. Only then can he can fulfill the order and accept being paid at a later time, likely on somewhere between net 7 and net 120 day terms, depending on the nature of your business.

Beware, somewhere in the vendor's paperwork is a personal guaranty!
Don't sign it!

However, first you have to look through the vendor's paperwork to find the personal guaranty section. In many cases, this paperwork will be titled something like Credit Application, and then there will be one to several pages you have to fill out about your company, e.g. the official corporate name, the address of your headquarters, your revenue numbers, headcount, the current availability on your credit line, your Dun and Bradstreet Number, inter alia. You might even have to attach your company's pro forma financial statements for the last quarter, and the audited financial statements for the previous year.

At the end of all of these disclosures you will likely find a place where a company owner, officer or employee has to sign and date the application itself, not the Personal Guaranty which usually comes later in the form, or as a separate attachment. By signing the Credit Application, on behalf of the company, you, a company agent or employee, is promising that the company will pay for whatever you are going to be ordering at some agreed time in the future. Signing this part is fine (The Credit Application, not the Personal Guaranty!).

To say it again, by signing the Credit Application, you, or an owner, officer, or coworker is acting on behalf of the company. The company becomes obligated for the debt, or the credit for which the application is being submitted. The person signing is not thereby becoming personally obligated to pay for any debt incurred. The company is obligated, and the credit line received belongs to the company and becomes its full responsibility. This is even the case if an owner of a corporation or LLC is signing the Credit Application. The debt belongs to the business entity, not the shareholder or member, at least not beyond their capital contributions.

Only if a person signs the Personal Guaranty section could he, the person, be on the hook for any debt incurred or credit extended, which is why this article is emphasizing that signing the Credit Application part of a Credit Application, as an owner, manager, or agent of a company is fine. However, signing the Personal Guaranty part of a Credit Application is a big NO NO! You as an individual do not want to be responsible for an entire company's credit line with even a single vendor, even if you are an owner! As an owner, if you are a shareholder or LLC member, you formed your company with a primary goal in mind, and that was to limit your personal liability!

In other words, if your company runs out of money and can't pay for the materials or product procured under the subject Credit Application, and a lawsuit results, you don't want to be personally named in the lawsuit. I suppose that is the big take away from this article. If you are an individual and you sign a Personal Guaranty on behalf of a company, you can be sued for any debts you personally guaranty, and the money comes out of your pocket!

Look closely - the sneaky
Personal Guaranty is in there somewhere!

Ok. Keep looking for the Personal Guaranty section. Make sure no one, especially you, signs the Credit Application as anything but an agent, officer, director, or authorized employee of your company, which as stated above, is usually part of the Credit Application itself. The Personal Guaranty, as also previously stated, is usually at the end of the document and titled "Personal Guaranty," or it may even be a separate attachment to the application. If you cannot find either, read every word of the application to make sure there is no language in it, whatsoever, which suggests that any individual signing anywhere is thereby made personally responsible for any debt or obligation incurred.

What do you do when you find the Personal Guaranty?
Destroy it. Cross it out!

If the Personal Guaranty is a separate attachment, cross it out with a big X. If the Personal Guaranty is a section at the end of the Credit Application, cross it out, every line! If there is Personal Guaranty language in the Credit Application lurking sneakily in the text, cross it out, but down by the Credit Application signature line, preferably right above it, write something like:

"Notwithstanding any other term in this document herein, no personal guaranty is being given by anyone executing this document."

Of course, always consult an attorney before inserting your own changes/additions into any legal document. Yet hopefully this article is instructive in the case you simply can't afford to pay a lawyer every time you deal with one of the many credit applications that come across your desk each week.

Caveat, sometimes you just have to sign a personal guaranty

Just make sure an owner of the company, not you, unless you are an owner, member, or shareholder, signs personally. In cases there is no other option but to have a vested member, shareholder, or owner of a company sign a Personal Guaranty. Why? In most such cases, the company itself isn't credit worthy, so no risk averse vendor is going to give the company terms unless an individual, with assets outside the company, guarantees the debt for any credit extended.

So we see, from a vendor perspective, a Personal Guaranty is an important tool when dealing with companies that present unacceptable financial risk. Just make sure that if you are not a vested owner (and clearly aware of the ramifications of what you are doing and personally risking to give such risk averse vendors separate financial assurances) don't ever sign a Personal Guaranty!

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Every day I work with business owners in a wide variety of industries helping them achieve their goals and reduce the stress they experience in running and building a business.  

As a part time Chief Financial Officer for these owners (and some non-profit leaders as well) my role is strategic in nature but I often find myself rolling up my shirt sleeves to get the job done in fixing day to day issues and problems.  

As a CFO, my technical goals are to improve profit margins, cash flow, and business valuations for my clients.  But my real goal is to put out the fires that keep them awake at night by helping them build stronger businesses that will minimize risks and enable them to achieve their life goals.   

As a business owner, why do you get up in the morning?

Is your business like a ship sailing without a rudder?

• I’ll sell to my competitors

What are your goals and dreams for your business?

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Do you remember that first day on your new job of a lifetime? You had so many ideas, goals, and plans swimming in your head. In every process and procedure, you saw simple tweaks you could suggest to help improve things.

Your ideas were all so simple. Why hadn't others already seen the possibilities and suggested them?

Your business needs new ideas - old practices never work forever!

Too many managers, executives, and owners get bogged down by their toxic mindsets. They get caught up with working in the business, while failing to work on the business. They lose that valuable asset of “outside perspective,” usually without even realizing it happened.

Seeking input and flexibility can be obtained in several ways:

If your business is stifled, stop doing things the same way!