New and longstanding businesses alike often rely on credit to get their ideas started or keep their operations going. Debt can be your friend as it can help you get the much needed money to hire more people, increasing marketing, improve customer service, etc. that will help grow your business. But, debt can also be your nemesis if you don’t have a plan to make wise of it and pay it off. Of course, the best course of action is not to incur any debt at all and fund your needs with your own cash. Here are 4 ways by which you can avoid getting into debt.
- Control Your Credit
The first step to controlling your credit is knowing where you stand by checking your credit report. You can check your credit score every 12 months for free in order to make sure everything is accurate. Maintaining a good credit score is one of the best ways to manage your debt effectively because you will be able to obtain credit for your business at more affordable interest rates. The lower interest rates will keep your payments lower, ensuring that your revenue won’t be going to high debt payments later on.
- Develop a Plan to Pay off Loans
First, stay on top of your business’s critical expenses to avoid taking on more debt. Once you have excess income, you can focus on paying off your business debt by deciding which loans to pay down first. Prioritizing overdue bills from key suppliers will help to maintain positive relationships. Quickly pay off debts that can have severe consequences for your business, like tax penalties.
If you’re dealing with tax issues, working with a professional is a wise move. Tax debt can be manageable with a tax relief program for business owners who are in debt. Finally, take care of the loan with the highest interest rate first, then continue paying down the debt with lower interest rates.
- Manage Your Expenses
Monitor all your expenses and analyze to see if they were necessary or superfluous. Having a detailed picture of your income and expenses will make it easy to see what expenses can be reduced or eliminated, saving your business money that can be applied to debts. Staying organized is key to managing your business expenses. Keeping records efficiently and effectively will help your business avoid surprise expenses by logging bills and invoices immediately. A solid record-keeping system will also enable you to keep your income and expenses visible, so you can always see your business’s big financial picture.
- Maintain Effective Payment Terms
In order to maintain positive cash flow and avoid having to take out additional business loans, evaluate your business’s payment terms for consumers. Streamline your invoicing process so that clients know what is expected of them in a timely manner. If your production method requires significant upfront costs, adjust your payment terms to include a down payment to cover these initial costs. Consider expanding the methods that clients can use to pay for your product or service, like accepting more credit cards or online payments, which make it easier for clients to pay you.
Managing debt wisely can equip a business with the means to start or expand its operations without leveraging its future financial health. A steady cash flow does not have to be hindered by high-interest loan payments if you stay organized and control your credit.
