Much like personal debt, business debt can get out of control quickly. A slow sales month, a lawsuit, an increase in vendor rates, the sudden need to hire a new employee, an unexpected maintenance or repair bill, or customers not paying outstanding balances on time, can set you back thousands of dollars.
Sure, you may have some emergency cash stashed away, but if the problem is large enough the consequences could be plentiful. You could fall behind on other bills, ruin your personal and business credit, lose assets, and more.
While you could try to apply for a loan or line of credit to cover the costs, if you don’t have the funds to repay it, you’re only creating a web of debt. If this has happened to you, it may be ideal to look for a business debt relief program to help you out of a jam. Failure to do something could result in you having to close your business for good.
Keeping Business Debt to a Minimum
Seeing as how having too much debt could mean the end of the business you’ve worked so hard for, it is essential to keep it at a minimum. Below are some suggestions on how to do this.
Reevaluate Your Budget
When is the last time you reviewed your company budget? A well-managed budget can help you see what income sources you have, how much you’re bringing in from each source, and how much you’re spending each month. If you find that you’re not making enough revenue to cover your expenses, you may need to rework some things to accommodate your cash flow.
Cut Back on Spending
To reduce your business debts you’ll need to cut back on spending. Reducing spending automatically lowers your company debts. While there are certain expenses you can’t get around (i.e. lease payments, insurance, utilities), some things you may be able to live without.
For example, could you go paperless and dramatically reduce your use of paper, ink, printers, copiers, and other supplies/equipment? If you travel for business, is it possible you’re overspending? Go through everything with a fine-tooth comb. If you can’t eliminate the expense, there’s also the chance to find a better deal.
Pay Your Bills in a Timely Fashion
Debt can really creep up on you when you’re not making the required payments in a timely fashion. In most instances, you incur some sort of late fee or penalty. It is best to do your best to pay your bills in full and on time. You can set up reminders or automatic withdrawals to ensure you’re getting the payments in as required. If you have additional funds to spare, you can also pay more than the minimum amount to try and knock down the debt faster.
Improve Customer Invoicing
If you’re in a business that offers customers lines of credit or payment arrangements, timely payments are crucial to your bottom line. When groups of customers start paying 30,60,90, or more days late, this is money that can’t be used to keep your debts under control. While you can’t control your customers, you can develop an efficient invoicing system.
Make sure you’re providing customers with a clear invoice that states what they’re paying for. Give customers advanced time to pay. Send out reminders just before payments are due. Offer incentives to customers who pay in advance or on time. For customers with low or poor credit, require a deposit upfront to reduce your risks. Lastly, if customers don’t pay on time, develop a solid method for collecting those funds.
As they say in the world of business, you have to be willing to spend money in order to earn money. Be that as it may, too much debt could result in serious consequences for your company. That’s why it is important to keep things under control. Hopefully, the above-mentioned tips will give you a headstart on reducing your business debt.