Running your own business means keeping a careful eye on your business finances. As helpful as it may be to have a bookkeeper or accountant either on call or on staff to help keep your finances organized, the only one who can best manage the cash flow of your company is YOU. That means ensuring you have enough revenue coming in to pay your expenses while simultaneously keeping your debts at a minimum wherever possible. Easier said then done, right? As you likely know, part of operating a company means incurring debt now and again with the intention of paying it off as soon as possible. No one wants to carry additional debt loads, particularly high interest debts, so managing (or avoiding) debt should be a top priority whenever possible.
Types of business debt
The types of business debt can certainly vary, ranging from small to large amounts owed in order to operate your business. Business debt can include, but is not limited to, the following:
• Business or commercial mortgages • Secured loans of any amount • Secured business overdraft • Tax debt – including business taxes, GST, HST, property taxes, etc. • Supplier debt • Equipment debt • Contractor fees • Operating costs • Unsecured loans of any amount • Unpaid salaries/wages
Each debt carries its own level of priority that is highly dependent on your loan provider, the length of the debt repayment period, the product or service for which there is a balance outstanding (think suppliers or large equipment purchases), any applicable interest and, of course, how influential that debt or amount owed is in your business’ day-to-day operations. For example, a supplier debt in good standing may be less of a priority in your overall business operations. However, that same supplier debt in poor standing may be detrimental to your company if it means you are no longer able to source necessary products in order to continue your work. Your business debt is highly unique to you, and so your debt management plan must be as well.
Tips for managing your business debt.
Managing your business debt begins by analyzing your existing finances and assessing your debt load. What is the priority of each debt? Can you repay your debts on a schedule without your business budget feeling the effects? The best course of action when it comes to incurring business debt is to avoid any unnecessary loans altogether. Sure, that additional funding may be tempting, but if it is not critical for your business, don’t take it. Part of keeping your business financially successful is maintaining a sense of frugality when it comes to your expenditures, and have more money coming in than going out. If you’re looking to manage your existing debts, consider these tips:
1. Extending credit & accounts receivables. Do you have excessive accounts receivables or accounts that are constantly slow in paying their bills? Now is the time to have a solid process in place to ensure money owed comes in as soon as possible while not allowing customers to use your credit to finance their business.
2. Work on increasing sales. Although this may seem obvious, many business owners working through debt often get overwhelmed and forget the bigger picture. Remember, happier customers mean higher sales so increase that cash flow by pushing for more sales!
3. Prioritize your debts. Tackling business debt is much easier if done in order of priority. Take a look at your budget and determine how much you can pay towards each outstanding debt. It can be helpful to work with your creditors in order to negotiate payment plans if you are struggling to meet debt repayment amounts.
4. Reduce your business expenses. If you find that your business is operating
with much too high of a cost, consider cutting back. Are there 3rd party services you can bring in-house? Are you spending money on services that can be cut or suspended for the time being? Even the little costs can add up quickly and you may be surprised at how much additional money you’re saving.
5. Stick to a budget. One of the best ways to get your debts under control is to put away your business credit card or line of credit and pay with your cash on hand. Not only will you be reducing your future debt and interest payments, you’ll have a much better idea of what you actually have to spend for your business.
6. Create a financial timeline to pay off those debts. When you give yourself a timeline and a set of clear goals, you are much more likely to accomplish them. The same can be said for having a financial target you’d like to achieve in order to reduce debt. Working with a financial advisor can help you create an achievable timeline to help pay those debts down, quickly!
No matter how small or large your business debt may be, managing your debts and avoiding any additional and unnecessary loans is a sure-fire way to get your business on track for financial sustainability.
If you’re concerned about your business debt or want to create a solid financial plan in order to avoid future debt loads, call Darryl Smith at (705) 434-0562 today! Together, you will identify areas you would like to improve and outline a plan to accomplish the financial goals you’d like to see for your business and yourself.