Being caught in a spiraling debt situation can be a problem for any business. Managing your creditors and your cash flow can leave you feeling stressed if there is not enough income in your company bank account.
Here are seven tips you can use to stop your company slipping further into debt and manage your way out of your current situation into a manageable debt position.
Pay Yourself First
You may be thinking that this advice is contrary to the topic of this article. However, the most significant creditor your business has is you. Entrepreneurs have a habit of forfeiting their salaries when things start to go wrong; this strategy is a mistake. If you do not place value on your time, then you are psychologically sabotaging yourself.
Consolidate Your Business Debt
The chances are that your company has multiple credit facilities with different vendors. Do all you can to consolidate as much of your debt as possible. Credit card accounts, mortgages, and hire purchase agreements can all be combined in a loan that you can refinance to an affordable payment. Learning how to consolidate debt can save you a lot of money and solve your company’s debt problem with this strategy alone.
Pay the Highest Interest Rate Off First
Different credit providers charge different interest rates, consider this when structuring your budget for your creditors. Always pay off the high-interest facilities first. If you pay them off early, you are essentially saving money. Structures your priority of payments based on a top-down payment system and make sure you clear the expensive first.
Meet Minimum Payment Obligations
Always make sure that you pay something toward your outstanding loans every moment, even if it is just the minimum amount. If you fail to meet your financial obligations to your creditors, your credit score will be damaged, and they will label you as a late payer. Your company relies on your credit score to get a cheaper financing rate, as well as the ability to leverage institutional finance, don’t damage it by missing a payment.
Create a Budget and Monitor Your Spending
Create a proper financial budget. If you struggle with this exercise, ask your accountant for assistance and figure out where your money is going every month. After designing the budget, pay particular attention to the departments that are spending the most and what they are spending it on. Cut back on any excessive spending and try and save resources from being squandered needlessly.
Downsize if Needed
Check what business expenses can be eliminated or downgraded. Do you use all the bandwidth on your internet package? Do you need the premier cell phone package? Company vehicles, office equipment, all of these expenses add up and if you can find savings in any of these departments you can use them to settle your debt and streamline your business efficiencies.
Increase Business Income
The most valuable asset a business has its ability to produce income. If you think that you may be leaving money on the table in your sales department, take a moment to consider how you can change your marketing and selling strategy to attract more clients and close more business. If you earn more, then you will no longer have a debt problem.
Every business needs to take a loan at some stage of its business cycle. It is easy for things to get out of hand and get in over your head with creditors. If at any stage it becomes a serious problem that threatens the health of your business, speak to your accountant and lawyer about how you can rectify the situation and restore your company’s financial health.