Debt management is a core aspect of any business venture, regardless of its size. Its importance becomes even greater when it comes to small and medium organizations having an understanding of their debt structure and financial health. Unfortunately, many small business owners choose to neglect this side of their operations and focus more on day-to-day management.
Moreover, it all may work for a while, until the moment you realize that the current cash flow is not enough to support the outgoing debt payments and other expenditures. To put it simply, small business owners should try to have a clear picture of the current and outstanding debt of their venture or risk encountering serious problems in the future.
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Turn To A Professional
If your business is already in the deep and struggling to stay afloat with its debt repayment and management, the best course of action might be to seek out an expert’s opinion. Specialized firms such as Hudson Weir Ltd. can offer a unique solution that takes into account all of the specific circumstances surrounding your business. Having an expert at your side can prove to be indispensable when you are not personally familiar with sifting through the various debt management options available to you and charting a course that could save your company.
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Create A Financial Forecast
While it may be exciting to start a new chapter of your life connected to a new business venture, don’t neglect the importance of having a solid plan and estimating the financial forecast for at least the first couple of years of operation.
Start by tallying up all of the initial expenses that will be needed to get the business off the ground. Usually, these include the funds that you will need to spend in order to get the required permits, licenses, etc. Asset purchases are also included here. Think of assets as all the materials, machinery, equipment, etc., that are essential for the niche you have chosen to work in.
Although most assets depreciate over time (they lose their initial value), they still keep some of their worth and can be sold if such an action will help improve the overall health of your business. Next, account for the ongoing or recurring expenses and use finance automation to stay on top of all the expenses that you expect to pay in the early stages of your business. While the total list will depend on your specific niche, typically, these expenses consist of rent, payroll payments, taxes, insurance, marketing costs, etc.
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Debt Is Not Scary
Equipped with an idea of what the expenses are going to be, you can start planning on how to acquire the necessary funds to support the entire operation. In most cases, companies decide to take on some debt, and this doesn’t apply only to small or medium organizations. The biggest corporations in the world are also forced to add debt when closing major deals such as mergers or acquisitions. For small businesses, however, we are talking more about loans, business credit lines, merchant advances, etc. In essence, your company receives a certain amount of funds that it will have to return within a specified timeframe while also incurring interest payments on the sum.
If you have a single bank loan, for example, it shouldn’t be that hard to manage. This is rarely the case, however, with businesses adding more varied debt naturally over the course of their operations. Keeping tabs on all payments and the dates they have to be made on could turn into a complex process.
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Keep All Vital Debt Information
When dealing with a more varied debt structure, it is essential to have access to all details about the different expenditures. Doing so will make the establishment of a plan to deal with the situation far easier and more time-efficient. After all, if you have exact sources for all of the outstanding credit cards, loans, utility bills and taxes, loan payments, and the associated interest rates, you can begin to formulate a debt management plan by sorting the items according to their urgency.
The data collection process will be even smoother if you have good financial habits established from the early stages of your business. These do not necessarily need to be complex and detailed protocols. Even a simple rule to dedicate a part of your day to review and adjust the financial information of the company can help tremendously in avoiding unnecessary troubles. Especially for companies with employees, no matter how much you trust them, it is always a good idea to exercise at least some degree of control by keeping yourself up-to-date with the financial state of the business.
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Look For Local Debt Relief Initiatives
If it seems like your company will crumble under its current debt structure, do not panic! Plenty of viable options exist that can help you in this situation. Do not forget that even massive businesses operate at a loss for years without going under, thanks to having a reliable debt management process.
In addition, you may hardly be the only one facing debt problems, especially if entire sectors of the economy are suffering a crisis and are crashing down. Under these circumstances, it may be worth your time to look for government or local debt relief programs. A good starting point would be to contact your local Chamber of Commerce.
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Consult Your Loan Issuer
Always keep in mind that banks want you to keep making your loan payments. If your company is currently struggling to generate enough positive cash flow to cover the expenses, you could think about restructuring your outstanding loans. Consult your bank and ask them for any debt management strategies or refinancing options they can offer. You could be able to renegotiate some of the loan terms or settle on a new payment scheme that requires lower monthly payments spread over an extended overall time period.
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Plan Ahead
Every company faces financial troubles at some point. While it is impossible to account for all potential problems that can arise, it would still be beneficial to have a plan in place right from the get-go.
During the initial stages of your business, try to acquire more financing than what is actually required and set the difference aside as contingency funds. The same idea can also be implemented as part of the normal operations of the company. One example is to set a certain percentage of the profits that will not be reinvested immediately but kept as a safety deposit.
Debt management may appear too overwhelming, but that is not an excuse to neglect it. Consider implementing at least some of the ideas listed above in order to avoid any unpleasant surprises that might have a drastic impact on the operational viability of your company.
