Every business, no matter the industry or how long it’s been operating, involves an element of risk, and a big part of this is financial risk. While getting into debt is not necessarily a problem in and of itself (many businesses take on loans) you still need to ensure that you are managing this debt properly to stop it spiraling out of control. Otherwise, you could find that your whole company is at risk. To help you out in your task, the following blog post is all about how to manage business debt.
- Understand Your Financial Situation
While it may seem strange to say, many business owners simply don’t know enough about their own financial situation. As a result, it’s all too easy for them to lose control of their financial situation. Even if you have an accountant who is helping you to legally get rid of debt, you still need to have a handle on what is going on so you can make the right strategic decisions for the good of your company.
- Break Down Your Outgoings
Split up your outgoings into different sections and you will be able to tell where a big percentage of your money is going at the end of every month. A big part of it is likely to be going on your payroll for your employees. Next, you have the suppliers and business partners that you have to pay every month. Obviously, we also have the debt that’s been mentioned. Expenses such as rent and utility bills need to factor in here – as does your insurance bill, too. Once you have a clear and realistic breakdown of your costs, you can work out where you can back cutbacks where necessary.
- Renegotiate the Terms of Your Loans
Another option that could be available to you is to renegotiate the terms of your loans. Get in contact first with your bank or lender and ask whether you are able to spread out the repayments over a longer period of time. You may also be able to get some leeway on the cost of the monthly payments. Even if you just use the technique to give yourself a bit of breathing room, it can prove to be a useful way of keeping your business afloat. One of the best ways that you can get a better deal is to make it clear that you have a plan of action for dealing with your debt. Present yourself and your figures clearly and with confidence. If you are proactive, it is more likely that you are going to get yourself a good deal. Otherwise, you could end up defaulting on your payments and your lenders are less likely to trust what you are saying. Always remember that it benefits no one if your company goes under, so it is in your lenders’ interests too that they are able to help you through this time.
- Increase Your Revenue
The most obvious way that you are going to be able to deal with your debt situation is to increase your revenue. There are several ways that you can boost your cashflow in the short-term. First is to have a sale or offer some discount codes to get money coming in. You can also try networking hard with your clients, friends, and anyone else who can open doors for you. Of course, you want to do this in a way that appears calm and measured as you don’t want to give off any impression of being in desperate need of support. Try targeting your existing customers as much as possible as getting new clients can prove to be a bigger challenge and they often don’t spend as much. On the other hand, your existing customers are already converted to the positive aspects of your business.
- Reduce Your Business Costs
If you are unable to increase your revenue any more, your only other alternative is to reduce your business costs. There are plenty of ways in which this goal can be achieved. First up, you could try reducing your office space and cutting back on your rent costs. This may be a short-term strategy that works well now due to the number of people who are working from home. It may be a difficult decision to make, but you may have to look into the possibility of redundancy for some of your employees. In serious situations, you may have to consider refinancing to generate the cash flow that you are looking for. Also, you have the option of talking to your suppliers to see if you can reduce your rates. If you have been working with them for a long time and you have a good record of paying on time, you are more likely to find that they are receptive to this particular proposal. One alternative to look into is outsourcing various functions. This would mean that you pay for the services you use, when you use them, and not for a full-time employee to be on hand all the time. This approach also enables you to access experts in the area you are looking to outsource – third-party vendors often operate at economies of scale in their field.
- Be Careful About Cutting Too Much
While you may have identified the areas in which you are able to cut your costs, you don’t want to do this too ruthlessly. Otherwise, you could find that you negatively impact your overall business performance as a result. For example, while marketing may seem like an obvious area to cut, if you are not bringing in any new clients, this can end up having a counterproductive effect on your overall business. If you make too many staff redundant, your business will no longer be able to operate as effectively as it needs to. You should be looking to trim the fat from your company rather than inflicting serious wounds that could prove to be terminal!
Managing your business’ debt properly can end up being the difference between running a successful company and your company getting itself into all sorts of financial trouble, so use the techniques above in the right combination to ensure that you get on top of your financial situation.