Company finances can be complex, especially for small businesses operating on a tight budget. As an entrepreneur, you may find yourself in the unique position of juggling both company and personal finances.
While it’s natural to have ups and downs with spending, the right financial management strategies can help you avoid the stress that comes with a negative cash flow. And while many business owners see debt as something to avoid at all costs, taking on some level of company debt is not only unavoidable for most companies but also helpful in growing your business and accelerating growth.
Working with creditors, vendors, and banks to understand your financial situation and develop a plan is key to solving any financial problems as an entrepreneur. Here are six tips for managing company debt and solving financial problems:
Know your company’s current financial position
The first step in managing company debt and solving financial problems is to know the current state of your company’s finances. How much money do you have in the bank? What are your outstanding bills and liabilities? What is your cash flow?
You can find out your company’s current financial position by conducting a financial audit. This includes recording your current cash flow and debt obligations, evaluating the health of your company’s financial accounts, and creating a cash flow statement that outlines your company’s monthly inflows and outflows, including operating expenses and debt payments.
An accurate picture of your company’s financial situation is critical for making informed decisions about managing company debt. It enables you to see how every aspect of your business’s finances impacts one another.
You can also use your audit to evaluate how your business stacks up against industry benchmarks. These can help you see how your business compares to your peers when it comes to things like revenue, operating costs, and the length of time it takes to make a sale.
Develop a realistic budget and plan
Once you know your company’s current financial position, you can create a budget and plan for the future. This budget should include all your company’s operating and investment expenses, as well as your debt and repayment obligations.
You can create a company budget by first breaking down your expenses into categories. This enables you to account for both fixed and variable expenses. Fixed expenses are those that remain relatively constant, such as a portion of your rent or mortgage payment.
Variable expenses are those that fluctuate based on your company’s expected growth, such as marketing or hiring new employees. This allows you to forecast your company’s cash flow based on the current state of your business and the expected growth of your company.
Additionally, you can use a financial calculator to create a budget and estimate your company’s profit or loss.
Establish a debt-repayment strategy
While paying off all debt as soon as possible may seem like the best approach for managing company debt, this isn’t always realistic or beneficial. Depending on your company’s current financial position, it may be wiser for you to prioritise paying off high-interest debt, such as credit card or personal loans, before repaying company creditors.
This will help you avoid accruing additional debt and reduce your overall monthly expenses. While the best strategy for repaying debt depends on the type of debt you have and the terms of your contracts, it’s important to contact creditors as soon as you realize you’re not able to pay your bills as agreed.
This allows you to negotiate new repayment terms with your creditors and avoid incurring fines or other penalties. It also shows creditors that you’re serious about repaying your debts and may help them be more flexible and forgiving in the terms they offer you.
Confirm that you have a solid reason for taking on company debt
Before you march into a bank or lender seeking a loan, be sure that you have a solid reason for taking on company debt. This is especially important for taking on debt from friends or family members—debt that may be harder to track and enforce, as you don’t have a formal contract with a fixed interest rate or repayment schedule.
Before taking on debt from banks or lenders, be sure to confirm that you have a strong and viable business plan, a realistic timeline for repaying that debt and that you can afford the terms of the agreement.
You should also be prepared to defend your business plan and provide evidence that you can repay the debt, such as your company’s financial statements and projections.
Use the same process to decide how to use company debt to grow your business
Whether you decide to devise your own strategy or seek company debt advice to you manage company debt and solve financial problems, you’ll likely encounter situations where taking on debt is the best option for growing your business.
Unlike repaying existing debt, you should take the same rigorous approach to decide how to use company debt to grow your business. The first step in making this decision is to conduct a thorough analysis of your business plan, including your marketing strategy, financial forecast, and current financial position.
This analysis enables you to determine how much additional capital you need to grow your company, as well as the best type of debt to take on to meet those growth goals.
Managing company debt and solving financial problems can be challenging, especially if you’re not sure where to begin. The first step is to know your company’s current financial position, followed by creating a budget and plan. You should also establish a debt-repayment strategy and confirm that you have a solid reason for taking on company debt.
Finally, use the same process to decide how to use company debt to grow your business. Doing so will help you avoid the stress that comes with a negative cash flow and will help you achieve long-term financial success as an entrepreneur.