Remember how we talked about assets being super-tools that help businesses succeed? Well, today we’re going to learn about something just as important: liabilities. Liabilities are like promises that businesses make to others. Let’s dive in and discover what liabilities are all about!
Liabilities are things that a person or business owes to others. They’re like promises to pay someone back or to do something in the future. Just as you might promise to do chores for your allowance, businesses make promises to pay for things they need.
Remember, assets are things you own that have value. Liabilities are the opposite – they’re things you owe. Here’s a simple way to remember:
Let’s look at some common types of liabilities:
When you borrow money, you promise to pay it back. This is a liability. For example:
When you get something now but pay for it later, that’s a liability. For example:
Sometimes, liabilities aren’t about money, but about promises to do something. For example:
Liabilities, like loans, can help businesses buy things they need to grow.
Paying liabilities on time shows that a business is responsible and trustworthy.
Too many liabilities can make a business less valuable.
In business, it’s important to have more assets than liabilities. This is called having positive “net worth.” Let’s look at an example:
Imagine you have a lemonade stand business:
Assets:
Liabilities:
Net Worth = Assets – Liabilities $100 – $50 = $50
Your lemonade stand business has a positive net worth of $50. That’s great!
Here are some tips for managing liabilities:
Remember, while liabilities might sound a bit scary, they’re a normal part of life and business. The key is to manage them wisely. By understanding liabilities, you’re taking another big step in becoming a smart business thinker!
Verse 1:
Things we owe, promises we make
Liabilities, let’s give ’em a shake
Borrowed cash or bills to pay
Promise Keeper, shows us the way
Pre-Chorus:
Loans and bills, future tasks too
All add up to promises true
Balance with assets, that’s the key
Promise Keeper, sets your business free
Chorus:
Promise Keeper, manage what you owe
Help your business learn and grow
More assets than debts, that’s the goal
Promise Keeper, keeps you in control
Verse 2:
Lemonade stands to big corporations
All deal with liability situations
Borrow wisely, pay on time
Promise Keeper, helps your business climb
(Pre-Chorus)
(Chorus)
Bridge:
Credit cards, mortgages, car loans too
All liabilities, tried and true
Keep track, balance, and you’ll see
Promise Keeper makes your business free
(Chorus)
Outro:
Promise Keeper, now you understand
Young entrepreneurs, take a stand
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