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Design: theSkimm | Photo: iStock
June 14, 2022

How is that new side hustle really going? Figuring out your debt-to-asset ratio is the best way to find out. And to show lenders or investors how well you’re handling your finances.

## Okay, how do I calculate my debt-to-asset ratio?

Here’s what the math looks like:

Debt-to-Assets Ratio = Total Liabilities/Total Assets =  __

## Got it. And what’s a good debt-to-asset ratio?

Less than 1 is a great goal. Because if your debt-to-asset ratio is higher than that, it means you have more liabilities than assets. For example: A 78 debt-to-asset ratio total means creditors have provided 78 cents of every dollar of your assets.

## Why do I need to know my debt-to-asset ratio?

Because it impacts how much you can borrow from lenders. A high ratio may cause lenders to view your business as high risk, which can lower your approval odds. Kinda like a low credit score.

## How can I lower my business’s debt-to-asset ratio?

If you aren’t happy with your current debt-to-asset ratio, all hope isn’t lost. One of the easiest ways to get it under control is to increase your revenue. Think: raise those prices. You can also focus on reducing inventory. Are you hanging on to too many items? If so, you’re probably overspending.

## theSkimm

Financial health is important for any business, no matter how small. Tracking your debt-to-asset ratio keeps you in the know. And on your lender’s good side.