Debt. We are all accustomed to debt. It is a reality of owning a home, using credit cards or owning a business. Wise management of business debt can provide useful leverage versus creating problematic financial slavery.
Manage Your Business Debt Wisely
Use these principles to improve your financial management and to avoid accumulating too much business debt that could put your small business at risk:
- Develop a thorough and sound budget. Make this a budget that the whole enterprise uses, not an “academic exercise” that you stuff in a file drawer.
- Forecast revenues carefully. Be realistic, not overly optimistic. Plan for seasonality and anticipate any potential dips in revenues.
- Plan ahead for major expenses. They should be deliberate, expected, justified and fit into your budget.
- Be diligent with frequent budget reviews.
- Establish and maintain team member accountability to your budget.
- Examine all current business debt items. This should include any business loans, lines of credit, credit cards, and inventory expenditures.
- Categorize all debts by payment amount, date and interest level. Prioritize your payments. Pay the highest debt amount and highest interest payment levels first.
- Speak with loan providers or vendors and ask for better terms or extensions without penalty.
- Consolidate debts, if possible, so that you have fewer separate payments.
- Re-finance high-cost debt to reduce interest payments and monthly payment amounts.
- When seeking additional funds, always work to get the best rates and payment terms.
- Seek ways to increase revenues.
- Dial-up your Social Media marketing outreach.
- Increase digital marketing efforts.
- Reward loyal customers in order to prompt increased frequency or amounts of purchase.
- Seek ways to gain revenues more quickly such as shorter payment terms with current customers and more effective collections of accounts receivable.
- Consider minor price increases for selected products or services.
- Manage expense spending carefully and frugally.
- Find ways to reduce spending. Eliminate unnecessary costs. Delay some expenditures, where possible.
- Review all operations at least every six months for cost efficiency.
- Maintain positive cash flow.
- Carefully manage business credit card use.
- Sell-off equipment that isn’t in use.
- Find ways to share costs with other companies.
- Outsource services which might save you money.
- Don’t mingle personal and business finances.
- Pay all tax obligations on-time. This includes payroll taxes and quarterly business tax payments. Avoid delayed payment penalties and legal complications.
Small Business Debt Isn’t a Bad Thing
Debt, when managed well, shouldn’t be a headache to the owner. Consider it an investment in the future and something that will help you grow. Simply manage debt wisely and use it strategically.