Why Your Business Needs To Declare War On Debt

Why Your Business Needs To Declare War On DebtSource: Flickr

Debt is nothing to be ashamed of. In fact, some may even insist that it’s a necessary element of business in the 21st century. But in the fast paced and ever changing marketplace that your business calls home, debt has to be managed if not outright avoided. While there’s a universe of difference between household debt and business debt, both can prove ruinous if they are not properly handled.

As a small business owner, you don’t need us to tell you that the deck is stacked against you, and handling your debts effectively and eliminating “bad debt” quickly, thoroughly and effectively can mean the difference between progressing to growth and prosperity or engaging the aid of insolvency practitioners. If you’re concerned about your small business debt, here are some strategies you can employ to unshackle yourself from the ill effects of debt.

1. Facilitating Cash Flow

Your cash flow is quite possibly the most important aspect of your business, especially in this fourth quarter period of high demand and robust economic activity. Your cash flow will enable you to keep stock coming in to match customer demand and ensure that you pay your debts quickly, avoiding late payment charges or other unnecessary expenses that can eat into your profit margin. If, on the other hand, you find that you have stock that is surplus to demand, be sure to use upselling techniques or seasonal sales to free up some of that much-needed liquidity.

2. Always Be Budgeting

Another of the few similarities between business and household finances is the importance of budgeting to limit the damage that debt can cause to your business. In both cases, not only is it essential to have a budget but that budget should also be frequently revisited and adjusted to ensure that it is fit for purpose. If you have existing debts that need to be eliminated (such as business credit cards) resist the urge to keep your payments to the minimum as this will mean that you’re mostly paying interest and making a less than significant reduction in your debt. Always budget for the biggest repayments that you can afford while maintaining a healthy cash flow to unshackle yourself from debt faster.

3. Handling Your Debtors

When someone owes you money, there’s a fine line between chasing up that debt in a way that will ensure a healthy cash flow and maintaining a positive relationship with what can prove to be a lucrative client. Dealing with an unpaid invoice can be time consuming and frustrating process. You can circumvent this by assessing customers’ credit worthiness and establishing individualised credit limits accordingly. If possible, draw up terms and conditions for repayment of debts that will enable you to recover the debt within a reasonable time frame without relying on debt recovery agencies.

4. Handling Your Creditors

As important as it is to box clever with debtors, creditors must be handled just as astutely. Maintain an open line of communication and good relations with creditors, making payments as fully and promptly as you are able. If you are able to keep your creditors happy when your cash flow is good, they’re more likely to be reasonable with you when cash flow is poor.