Debts are not fun to experience, are they? But thankfully when it comes to our personal finances we can avoid them. Sure, we can sometimes be struck by bad luck or an emergency that means we have no choice but to go into debt to prevent a potential problem from getting worse.
But those rare occasions aside you can usually avoid debt by staying on top of your finances and budgeting. However, if you have a business then debt is likely always going to happen sooner or later especially in those early days of your business’s operation.
But that doesn’t mean you have to just put up with it even if it is considered the norm. Remember you will need to get out of debt as quickly as possible or at least be able to manage it effectively. So, how do you do that?
Managing business debt can be done by following many of the similar tips and advice that would be useful for dealing with personal debt. However, not all the advice is the same and it can’t all be done in the same way either. Dealing with business debt (even with a small business) can be much more complicated.
So, let’s break it down and examine how business owners can deal with their debts more effectively with our budgeting tips.
Cut Your Spending
This is much more difficult than it might sound in many cases and it could even take some rejigging of your businesses budgets. But usually, there will be at least one or two ways you can cut your businesses costs.
If your business is still in the early days of its conception, then you’ll need to spend money, won’t you? Those advertisements are not going to pay for themselves, are they? But you can be smart and find ways to carry out your businesses operations for a fraction of the price.
For example, instead of printing posters or flyers for your business stick to posting them around social media instead, it’s free after all. If you need to kit out your office get furniture second hand and look for deals when it comes to software programs if you need them.
Also make sure you’re not overindulging on things you don’t actually need, sure fresh fruit for breaktimes and fancy stationary might make your business very popular with your staff and customers. But if you’re struggling with debts they are a cost you could do without.
Consolidate Your Debts
This tip is actually part one of two possible paths you could take to cut debt, consolidating your debts is an effective way of reducing them because you’ll be able to pay all your creditors in simple monthly instalments.
There are a number of ways you can go about consolidating your debts but one of the most popular is to use an individual voluntary arrangement. Commonly known as an IVA these arrangements can be carried out by a wide variety of different groups such as The Debt Advisory Service but in order to work, you will need 75% of your creditors to agree to the arrangement.
There are some downsides to IVAs which may make them a poor choice for dealing with your businesses debt or you might wish to simply pay your creditors individually. If that is the case, then the next tip will likely be of interest to you.
Prioritise Your Debts
So, if consolidating your debts isn’t something you think will work for you then you should instead prioritise your debts. This might sound like obverse advice, but you’d be surprised how many business owners can make mistakes. Your repayments should be carefully structured so that debts that have the highest rates of interest or have been outstanding the longest are paid first.
It might be tempting to focus on smaller debts first, so you can get rid of them but in order to tackle debt effectively, you need to be able to prioritise payments. Interest rates can make a difficult debt unmanageable in some cases so make sure those monthly payments are made on time.
Find Away To Increase Your Profits
What business doesn’t want to increase its profit margins? If you’re finding yourself struggling with debt then you should start looking for ways to attract more customers, sure that’s easier said than done right?
Especially when the first tip was all about cutting costs, but it can be done and no one said running a business would be easy. Be smart about it though, for example expanding into a new location might increase business and attract new custom but it will certainly be adding to your debts so is it really worth risking?
Instead, focus on the small-scale by increasing your local marketing efforts and social media presence. Depending on the type of your business you could do all kinds of things to attract new customers and raise profits. Like hosting community events and offering special discounts for a limited time.
Stay on Top of Your Debts
Again, this might seem like advice that everyone who runs a business will know, by whether you’re a veteran businessman or a complete beginner staying on top of your debts can be very tricky. There is a lot the average business needs to keep track of and even if your business is only small it can be a difficult and time-consuming job to ensure everything is paid on time.
You can get so carried away with things that you can easily simply lose sight of your creditors, but they won’t forget you. To borrow a phrase from one of my earlier tips you need to prioritise your debts at all times. If these means a new plan, product or deal as to wait a bit longer then it will usually just have to wait till your business is in a stronger position.
So, that’s five tips to dealing with business debt, in many ways personal debt and business debt are very similar. But your business sinking due to debt is something everyone wants to avoid so be smart and follow our advice to ensure it never happens to you.