Debt management might not be the first thing that comes to mind when you are starting to put up a small business. However, it is one of the realities of running a business and startups would eventually deal with it sooner or later. Debt will be a big part of any startup regardless how much bootstrapping you have to go through just to launch it.
There are a lot of tips when you are starting a business and one of the pieces of advice you might have encountered is to stay away from debt. There are people who avoid it like the plague and do everything they can to distance themselves from it. Some would rather dip into their savings and even sell some items just to raise the funds they need for the business.
However, debt is not all that bad especially when you are trying to start up a business. There will be instances when you have to borrow money to make money and that is perfectly acceptable. The problem starts to manifest when you lose your sights on the amount you are borrowing. After that, you start to put off the repayments that come with the loan.
Sadly, this is not avoidable especially with the sheer amount of small businesses in the country. According to SBA.gov, 64% of jobs in the private sector is from small businesses. That accounts for a large percentage of people working for a small business. This only underscores the need to ensure these small businesses are able to keep afloat with proper debt management principles.
Here are a few things to keep in mind as you take on debt as a small business owner.
Focus on increasing sales
One of the cornerstones of your ability to repay back debt is the amount of income you generate from your business. As you increase your sales, you increase your ability to pay back your lenders. Debt management becomes a lot easier when you have the funds to meet your financial obligations. It also gives you the chance to borrow more funds as you widen your business operations.
One of the best strategies you can use as you endeavor to increase sales is to take care of your existing customers. These are the people who already believes in your product or service that you offer. They are already doing business with you. It is now a matter of ensuring that they remain happy and loyal customers for your business.
As you do this, you need to expand and look at other customers as well. Take a look at how you can attract new customers to increase your sales. As you do that, debt management becomes a lot easier because you actually have the funds to pay for them. It now becomes a matter of scheduling the payments to meet your financial obligations.
Look for a way to bring down costs to make debt management easier
Your overhead expenses would play a crucial role in your debt management efforts. One one side of your business would be your income and on the other, your expenses. For most, especially startups and small businesses, this is a tight wire act. It is a constantly moving list that pushes and pull each other depending on how one side is performing.
One way to manage this is to have a firm grip on your costs. Check your overhead expenses and identify areas where you can make adjustments. It can be as simple as scheduling the electricity in the office or even managing the supplies that you use on a regular basis. The better you control your expenses, the easier it is to lower it down. As you do this, you are able to allocate that amount of money into other areas of the business such as debt payment.
Make sure to follow your budget
Just as you need a budget for your personal household expenses, the same can be said for startups and small businesses. You usually put together a business before the start of your calendar or fiscal year to set targets. These goals apply to both income and expenditure. This budget now serves as your blueprint for the rest of the year.
Debt management should be part of this in terms of how you plan to repay back lenders and creditors for the year. Apart from the schedule of payments and making sure that they are sent out in time, you need to plan also on how aggressive you would be on repayments. You need to look at interest rates and other factors to see where extra payments would go a long way in helping you save money.
Plan for future expenses
As you tackle existing expenses, you also need to be able to forecast future expenses. This is an important part of debt management because you get to be more proactive with it. As Huffingtonpost.com shared in a recent article that as important as the potential earning forecast is, so is your forecast on future expenses.
One of the activities you can do to help you forecast your expenses is to look at historical data. You can try to locate patterns in your spending and be able to prepare for them. The better you are prepared with costs, the better you can address your debt payments. This is because when you are faced with an unexpected expense, one of the first things you might do if move a payment down and just deal with fees and penalties. This affects your budget, your score, and your overall finances.
Consolidate your debts
One of best options you can consider when tackling debt management for your small business is debt consolidation. Simply put, the program combines most, if not all your existing debt obligations and puts them under one account. This helps you manage your payments because you get the chance to lessen the details you have to worry about.
It is possible that you bankrolled your startup with multiple credit cards. As you know make a decent income, repayments are quite challenging. This is because you have to worry about multiple card lenders, various payment amounts as well as different payment due dates. You run the risk of missing a payment date or worse, completely forgetting to make a payment.
Debt consolidation can minimize the details you are juggling every month by combining them under in a single account. This gives you time to attend to other business needs and not lose all your time worrying about making several payments.
Communicate with your creditors
As you run your business and take on debt management, you would find the value of being proactive to be quite handy. This can also apply to your creditors. Communicate with them during good times to make it easier during the bad. As you do this, you develop a professional relationship and makes communication a lot easier.
Debt management is not a walk in the park when you are running a business but there are ways to make it a lot easier. It does not have to to be a very complicated process that confuses you every time. You just have to remember the basics and everything else will follow to make debt payment easier.