To start a business, finances form an essential ingredient. An entrepreneur needs to accumulate sufficient finances to make the business grow and flourish.
But, finances are not under control every time and can go haywire if not appropriately planned. It is essential to check your financial status.
Many entrepreneurs go for debt if they fall short of funds. To run your business smoothly, it is vital to manage your debts. Debt management is crucial to avoid any problem with debt.
Challenges for small businesses coping with debt
Risk is an integral part of any business. Several factors are not in control of an entrepreneur, such as pandemics, natural calamities, or other economic factors.
These factors are unpredictable and may negatively affect the business. If any of the elements are into play, you may find yourself in a debt swamp.
In this case, you have to maintain your calm and deal with the situation correctly. Do not panic and wait for things to unfold.
Once the situation is clear, you can plan your course of action and manage the situation appropriately. This blog will guide you on ways to manage debt in an efficient way to help entrepreneurs.
With the following ways, you can take control of your debts and let your business grow.
1. Be aware of your situation
If you find yourself in continuous debt, do not wait for the situation to get worse. Instead, take action and make things work in your favor.
If you delay a situation, there might be chances that the situation may go out of control. Failing to make payments on time will increase the debt and lead to employee loss, stock seizure, and many other things.
The situation also has a consequence of court cases by the creditors. Hence, it is essential to know your debt status to take measures to rectify it.
The worse in this situation can invite government intervention if you are unable to pay your taxes. The government will come after their money, and it can cause trouble in your business functioning.
You cannot run from the government as they have the authority to get their money irrespective of wherever you are in the world.
Government has the authority to sue you legally, seize your assets or declare you bankrupt. The government doesn’t need a higher authority to put you in legal trouble.
So, be aware of your financial situation. Also, be clear about the facts and laws related to your debt and financial situation. It is essential to keep an eye on every detail.
To stay updated, you can use good software to help you stay on top of your debts. Also, this software simplifies the calculations and makes them easy for you to interpret.
Once you are entirely aware and sharp of your financial situation, you can run your business accordingly and make informed decisions.
In case of financial constraints, you can go for debt consolidation loans from the market. Loans for bad credit history people are also available in the UK. Repayment terms are fundamental in debt borrowing.
If you are doubtful of your paying capacity, you can also opt for guaranteed acceptance loans from the market and fulfill the financial needs of your business.
Everybody looks forward to getting their salary on time. If you do not pay your employees their wages on time, you shall be penalized for it.
Goodwill is a valuable asset, and do not let it get hampered at any cost. Do not indulge in any activity that may make you lose your goodwill with your business partners and loyal suppliers.
c. Timely payments
To borrow any loan or debt, your credit score plays an essential role. If you do not pay your employees on time, it can impact your credit score and future borrowing.
Like the salaries, your other costs should be taken care of and paid in time. Bills such as electricity bills, rent, and other fees should be paid on time to keep your credit rating unaffected.
e. Secured debts
To be on the safe side, you can form a limited liability company or a corporation. This will help you save from creditors who may try to take your assets. Being a sole proprietor may make you liable for all the debts you owe.
f. Credit cards
Any fee or charge multiplies quickly. Avoid any penalties or fees.
2. Renegotiate and refinance
One of the best ways to take care of your debt is to renegotiate your bank loan regarding interest rate charges and payment terms.
You can get in touch with your bank to reduce the interest payments and the repayment cost.
Due to the higher default rate on the bank’s interest charges, the bank charges a higher interest rate.
Another option is to combine all your loans. This will help reduce the monthly payments you are making currently and not impact your credit score.
You can seek professional help from debt consolidation companies, and they can guide you in the right direction.
Alternatively, you can consider refinancing, keeping your credit score in mind. Any step that you take, you have to keep your credit score in mind as it plays an essential role in your debt management.
3. Favourable payment terms
If you are on good terms with your creditors, you can talk to them and explain your situation in detail. Follow a positive approach and renegotiate your payment terms with your creditors.
Primarily creditors may allow you to pay according to the new terms as they are in their interest. After all, if you are unable to pay, they are also at a loss, and the whole amount goes for a toss.
You have to initiate before your creditors begin. If your creditors start chasing you, that is not a good indication in case of a missed payment.
So, if you keep your negotiation terms, it is likely that they will agree to it, and you can get new timelines and guidelines.
Creditors may look into your credit report before offering loans to you. In debt consolidation loans, it is essential to maintain a good credit score.
In case of a low credit score, many creditors offer loans for bad credit history borrowers. In the UK, it is a common practice. The credit score is essential in other loans as well, such as the guaranteed acceptance loans.
4. Increase revenue
You can get your debt payments reduced by being proactive and taking the proper steps.
a. Present your customers with reduced prices. It will help you increase your cash flow.
b. A feedback session is always practical for business growth. You can make your business better by having the proper feedback from your customers.
c. Meet with your accountant, financial planner, or banker. Take expert advice from your banker or financial planner to manage things better.
5. Reducing business costs
Cost management is an art that an entrepreneur should learn to make their business profitable. You can work on your costs, try, and cut your costs wherever possible without compromising the quality.
Take help of the various accounting software available in the market. You can adopt the following ways to manage your cost-cutting:
a. Office space occupies a significant share of your rent and expenses in a month. You can try to reduce the office space that you are operating from. It can significantly affect your costs.
b. Consider taking out the employees that are less productive but are at the exact cost. Instead, you can hire consultants on a short-term basis that are more efficient and cost you less.
c. Do not be shy about asking for favors and discounts from your suppliers. Any amount of discount can help you cut your costs. Especially if you are dealing in bulk order and quantities, suppose you have a good payment history that works as the icing on the cake.
6. Be smart in cost-cutting
In the case of debts, you may feel cost-cutting is the best feasible option. To imply the cost-cutting strategy, you have to be smart enough to do it appropriately.
Blindly following the concept of cost-cutting will not help you save money every time. It is the “where” and “how” of cost-cutting that decides your revenues.
For example, if you plan to cut down on your marketing and promotional costs, you may save a lot of money in the short term, but you may lose on your potential clients in the long term.
You have to strategize your cost-cutting in an effective way that doesn’t hamper your functioning.
Be sensible while cost-cutting and while deciding to forecast its consequences.
7. Raise funds
To pay off your existing debts, you can raise funds from various sources:
a. Friends or family
Borrowing funds can be awkward for your family or friends, but you will be on the beneficial side because of lower interest rates.
b. Liquidate assets
You can think of liquidating your asset rather than going bankrupt. Although it is not profitable, it weighs more than bankruptcy.
c. Look for new investors
Along with the current investors, you can look for more investors
8. Be realistic
Any debt or loan should be paid strategically, such as debt consolidation loans or guaranteed acceptance loans.
If you are unable to pay back your loans, you are in the bad books of your creditors, and you may be offered loans for bad credit, which has entirely different repayment terms.
Many people become defaulters in the UK and many other countries such as Ireland, Australia due to non-payment.
Many entrepreneurs are not realistic about their debt levels and are not comfortable talking about it. You can take help from local business advisory agencies.
Do not be afraid of failing, as many new entrepreneurs fail at the initial stages. However, it is essential to stand again and work towards your success with proper strategy and planning.