As your company grows, or as the economy declines, you may run in to the problem of dealing with debt. Small businesses and startups may have the toughest time with debt management because of a lack of related experience or a tighter budget.
The best debt management differs depending on the size of your business. Small businesses, we are here to help you!
Choose the Right Bank
In an article for Focus, experienced CFO Consultant Rick Kadet provided 10 tips for managing business debt. He broke down the best methods for business of varied sizes. Regardless of the size, Kadet indicates that each business needs to choose their bank wisely.
- Talk to people at similar firms for referral to a bank and loan officer that understands and exceeds your expectations.
- Select a commercial bank that lends and depends on success in your industry.
- Create a positive, working relationship with your banker. Not only will this person better understand your needs, they can be a great resource for new contacts.
- Accept the loans that you anticipate can actually be repaid. Just because something is offered doesn’t mean you have to accept.
Organize debt and spending into separate, descriptive categories. Keep track of the cash flow and make sure all expectations are realistic. The more realistic you are in anticipated positive cash flow, the less you will have to worry about micro-managing your budget.
- Organize your accounts. Identify the payoff amount, payee, minimum payment amount and due date along with the current maturity date.
- Assess the current financial status of your business and determine what expenses you can cut. Do you have extra office space available for subleasing? Can you downsize on space to save money from rent? Look over every expense and brainstorm ways to cut back when you can.
Closely Monitor Credit
Credit is important when starting up a business. To get a good interest rate on a loan, you’ll need good credit. Seeing a financial consultant about your business and credit before meeting with a lender is always an option. Utilizing basic accounting is a good place to start when tracking cash flow and credit.
- Be aware of the interest rates on all loans and credit cards.
- Use credit cards only where appropriate and pay off the balances monthly.
- Carefully manage your credit line to avoid defaulting on a loan.
In business, it is common for some debt to take place. Debt is acceptable when the monies received will lead to higher sales or business. And as a business expands, acquiring debt may be justified. Cutting costs and monitoring cash flow closely can help a business minimize the debt they’ll incur.