Growing a Business is a calculated risk that can turn out really well, however for it can also end badly and not always because of anything the owner did. Events outside of your control can put a huge strain on your business, just look at what’s happened in the Caribbean with Hurricane Irma. So natural disasters and unexpected global financial events like the GFC or a recession that may be caused by the onset of a sudden war or market crash are hard to plan for, if not impossible. There are however action steps that can be taken to help you manage debt that’s just gotten out of control due to ongoing mismanagement.
The starting point is to assess your current position, honestly. Managing business debt can be done well even in the most trying of times, when there’s a robust plan in place. While more than 80% of businesses fail within their first year of operation, and most of them cite cash flow issues as the source of the failure, they’re also not managing their debt obligations or credit facility.
Here are five tips you can use to work through your debt obligations so you can focus on increasing your cash flow.
#1 Pay off Expensive Credit First
Do a breakdown of all of your credit accounts and identify the facilities that cost you the most money every month. Accounts that charge high-interest fees should be targeted for payment first as any savings that you can make on paying back interest are as good as saving real money.
#2 Use a Consolidation Loan
Companies can have multiple credit card facilities available to them, and if you have overextended most of them, then it might be a good idea to think about consolidating your credit card debt. There are micro-lending companies that can show you how to consolidate credit card debt, as well as any other outstanding debt you may have. By consolidating your debt, you have the opportunity to refinance the amount on new terms, saving you money on your monthly payment.
#3 Never Skip a Payment
It’s critical to ensure that you pay your creditors something at the end of the month, even if it is the minimum monthly payment that’s due. If you fail to make any payment on your loans, don’t wait for the creditor to call you to chase the debt. Call them right away and explain your situation, in most cases they will understand and arrange new terms on the next payment. However, if you leave it and don’t contact anyone, then they may report you to the credit bureau and damage your credit record. This negative creditor feedback will hurt your company when your way to obtain institutional finance in the future.
#4 Make Sure You Get Paid First
Many entrepreneurs feel obligated to the survival of their business. Some even put their financial health in jeopardy to see a business through failing times. The fact of the matter is that you should never let your business life affect your personal life. Not paying yourself because your company is behind on the bills is not a good idea. Always pay yourself first. By paying yourself first, you create a habit of saving and building a cushion for your personal life should anything go wrong with your business ventures.
#5 Boost Your Sales Targets
Be proactive and look for opportunities to increase your sales and revenue. Earning more is a sure way to meet your debt obligations and pay off your creditors faster. Focusing on your products and services and increasing marketshare is a great use of your time while your accountant focuses on the financial position. Call a meeting with your sales and marketing team and discuss new ideas on how to boost your sales.
A business can be a risky proposition especially when you’re investing in it’s growth through challenging financial circumstances. Cash flow and indeed credit is a necessity for business and they need to be managed responsibly to facilitate new opportunities for growth in business that doesn’t put your debt levels out of control and your business at risk of failure.