Debt is a fact of life for many businesses. Almost everyone uses some form of borrowing – even if it’s just a credit card for covering expenses. After a tough trading year, you may be carrying heavier debt burdens than usual.
It can be a challenge, that’s for sure – but it needn’t get out of control. If you’re serious about taking charge of your finances, then a plan to effectively manage debt should be your next step. It can be a challenge but it needn’t get out of control. If you’re serious about taking charge of your finances, then a plan to effectively manage debt should be your next step.
1. Develop a debt management plan
When it comes to tackling debt, one size doesn’t fit all – there are many different reasons why you may need assistance with your finances. Experience shows that a good approach to successful debt management is a tailored approach, one that meets the individual needs of your business.
To begin with, it’s important to know where and how money is being spent. Many businesses don’t keep a detailed record of ingoing and outgoing income. Once your accounts are in order to look over, you may be surprised to see how money is actually being spent.
Ask yourself questions like:
• Do I know the true cost and profitability of everything we do?
Our services? Our products? Our customers?
• What are our margins? Do we have room to cut costs and still
remain profitable?
• Can we afford to add extra services or will this compromise our
ability to provide others?
When you’ve identified your spending habits, it’ll be easier to develop a plan that will work based on the way you run your business.
• Developing a daily, weekly, or monthly budget.
• Beginning to pay off some old debts (the high-interest ones
should be first on the list).
2. Find the right loan for your borrowing
There are a number of ways you can structure your finances. Often, it’s about identifying the difference between short-term cashflow measures and longer-term debt management.
A credit card may be ideal for short term finance requirements, but beware the high interest rates they charge if you dont pay it off on due date.
For longer-term debt management, you should be mindful of interest rates being charged to you. Business persons often have more than one loan for the business. plus a hire purchase loan on top. It may be advantageous to enact debt consolidation (the process of taking out one loan to pay off several others). Debt consolidation can often secure you a lower interest rate, a fixed interest rate or you can simply benefit from the convenience of servicing just one loan. But you must also be aware of any early repayment penalties on existing loans.
3. Get as much advice from the experts as you can
If you’re finding it hard to manage debt on your own, ask your bank for help.
Carrying debt can be extremely stressful for anyone. Times were tough last year, and the New Year is a good time to look at your business finances.