Being in business requires overcoming many challenges that present themselves during the growth cycle. One of the biggest challenges is managing debt and using it productively to increase your company’s income and generate more profits. However, some company’s find themselves in scenarios where they have over-extended their credit facilities and face severe repercussions if they can reduce their debt to sustainable levels. Here are five ideas you can use to cut your debt down and keep your cash flow positive.
#1 Classify Your Debts
Take stock of your current financial situation and make a list of all of your creditors. Prioritize the accounts that charge high-interest rates on outstanding loans. Make sure that you pay these debts off first before any others and put all of your spare cash into settling these accounts as fast as possible.
#2 Consolidate Outstanding Debts
Speak to a micro-lending professional about how to consolidate debt and other credit facilities into one favorable settlement. With a consolidation loan, you can pay off all your creditors and improve your credit rating, while negotiating new terms on the capital you are financing. This refinancing can save you money on your monthly payments and increase your free cash flow.
#3 Don’t Let Your Creditors Down
The health of your credit record depends on your ability to service your debt. Therefore; it is critical for you to meet the minimum payments on your credit facilities every month. If you are aware that you are going to be short on a payment at the end of the month, then take a proactive stance and call the creditor straight away. Explain your financial situation and agree to new settlement terms. Most creditors will be able to help you out because they realize the pressures on small businesses in today’s economy.
#4 Create a Budget and Stick to It
Your business should have a solid financial plan that you adhere to without fail. Create a budget for every department and make sure that the departments do not over-extend their budgets through frivolous spending. Take a look at where you are spending money and find areas that you can cut back on. Are you sure that you are using the cheapest supplies? Could your telecommunications packages be cut down? Do you use all the bandwidth and cell phone minutes on your contracts? Could you downgrade your company car to a more affordable model?
#5 Make More Sales
If you need more income, why not make more sales? More sales mean more money, more free cash flow, and more money to settle your creditors faster. Take a staff meeting with your marketing and sales teams and spend some time strategizing a new marketing plan and sales pitch that could increase your numbers.
Credit facilities can help a business grow, or they can march them into failure. Be careful with undertaking any loan or line of credit that you are unsure you will be able to repay. Speak with your accountant and take into consideration the impact of fluctuating interest rates and other hidden costs included in the loan.
Credit should only be used to acquire assets and services that can produce income for the company. This productive investment adds to the company’s value and generates more money than is required to pay it off in monthly installments. Malinvestment would be taking loans to pay for expenses and then facilitating those loans with interest payments to creditors; this does nothing to boost your productivity or earn your firm more money. Be careful with your credit and keep your company growing into a prosperous future.