Managing debt while on a path to growth can be a significant challenge for an entrepreneur.
Whether it’s personal debt accrued in the process of starting the business or company debt amassed as a means of securing funding, it’s healthy for the business to manage debt as efficiently as possible. At the same time, this needs to be done without sacrificing additional efforts or funding that should be going into the growing business.
As most people who have ever been involved in a startup are well aware, there isn’t always a perfect solution to this problem. But there are certainly some steps you can take that will lead you in the right direction.
Get Professional With Your Books
The best way to make any sort of change regarding business finances is to get professional with your books. Plenty of entrepreneurs — even the organized ones — use relatively haphazard bookkeeping methods in the early going. When you can make do with a few spreadsheets and the business is still getting off the ground, this just doesn’t seem like an area to devote resources to. However, once the business is growing and you’re looking for ways to manage your debt, it’s time to embrace professional bookkeeping services. Whether that means downloading high-end software or contracting outside accountants is up to you. Either one can help you to clarify your business’s financial situation quite quickly. This can give you a better idea of how pressing your debt concerns are, and where you might find the money to pay off the debts.
Find Ways to Cut Costs
This is a step you can only really take once you’ve gotten your bookkeeping in order. But it’s also important to adopt the right mindset. When you establish a growing business, it’s easy to get into the habit of thinking you need to keep spending more to maintain your trajectory. In some respects, this can be true. You may also be able to start looking for ways to cut costs and reallocate funds toward setting debts. Maybe you’ve paid for a web developer, but once the platform is up and running you can maintain it yourself. Perhaps, you’re spending on marketing efforts, but you can now start to grow the business more organically. Whatever the case, even a small cut here or there can help you get that much closer to successfully managing debt.
Register as an LLC
If you haven’t done so already, registering your business as an LLC is another good way for managing debt. More specifically, an LLC can help avoid future legal issues connected to debt coming your way. There are actually a few perks involved in establishing your business as an LLC. One of the main benefits is that it separates an owner’s personal assets from those of their business. This means that any debts the business may accrue are kept specific to the business.
As a business owner, you simply won’t have to worry about your personal finances being affected by a business issue. However, this is also a good strategic move for the business. Debt is simpler and easier to handle when it’s not tangled up between business and individual finances. You’ll have a clearer picture of what’s owed, and thus a better path forward to managing it. Click here to learn how to start your LLC.
Consolidating can certainly be a worthwhile goal for an entrepreneur saddled with multiple debts. The idea is simple. One new loan gives you the finances you need to pay off a handful of older loans, and stop their mounting interest in the process. In some cases, this can be a responsible way for a small business owner to restructure a financial situation and make the debt more manageable.
Find New Income Streams
When your business is starting to grow, your primary focus will be on ensuring that it continues to perform its core function as well as possible. But if finances are getting tight, and particularly if the company is still somewhat one-dimensional, it may be time to think up some new income streams.
One of the more ambitious analyses out there for growing businesses went as far as to suggest that entrepreneurs should aim to create at least seven revenue streams. That’s an awful lot for a new company. But, it can give you something to aspire to and start you thinking outside the box. Maybe you can start a subscription newsletter relating to your industry. Perhaps you can start selling apparel if it’s appropriate for your business. There are all kinds of interesting possibilities, but the idea is to generate some additional income that will make debt payments less burdensome.
Plot Out Your Next Quarter(s)
This has to do with shoring up your bookkeeping, given that a more thorough, accurate account will help you forecast the near future more effectively. As was pointed out in a piece about optimizing cash flow several years ago, it can be a good idea to plan your cash needs for the next quarter or even the next year. Really, this is a prudent strategy for any business in general. But when you’re specifically looking to manage debts while maintaining growth, a clearly scheduled spending strategy can make your decisions easier. When you know what you’ll need to spend to meet your growth needs, you’ll be able to figure out what’s left to address debt. While every business ultimately faces its own challenges, and all debt is different, these strategies might just help you to manage what you owe without sacrificing growth.
This article was authored by Penny Crews