Managing the debt of your company is an important part of staying in business. Because, if you don’t handle it properly, you won’t be in business for very long. The fact of the matter is that businesses need access to credit facilities to help their growth phase of the business cycle.
However, there are occasions where firms abuse these credit facilities and end up over-extending their credit position. If you think that your company’s debt levels could be presenting high levels of risk to your business, then here are five tips you can use to cut things back and improve the financial health of your business.
#1 Prioritize Your Expensive Creditors
Start your business credit audit by gathering all of your outstanding creditors and examine the terms of your loan agreements. Identify all of the creditors that are charging your company significant amounts of interest on the loan amounts. Look to make a plan to pay these creditors first as saving on high-interest payments is as good as saving money in the bank.
#2 Always Meet the Minimum Payment to Creditors
Your credit score is vital to the financial health of your business. If you miss payments to creditors, then they can report your firm to the credit bureau, and your company’s credit score could be affected. Always make sure that you pay something toward your debt every month, even if it is just the minimum payment due.
#3 Consolidate All of Your Debt
If your business has missed a few bills and this has negatively affected your credit score, then it may be time to think about taking a consolidation loan to help you make the debt more affordable. Professional, experienced and ethical microlenders will be able to show you how to consolidate debt with bad credit. A consolidation loan allows you to take your outstanding credit facilities and settle them by creating a separate loan for all your outstanding debt. You can renegotiate the payment terms on this loan and make it affordable enough for you to service the payments every month. Taking this approach will improve your credit score and help you achieve sustainable levels of debt that you can afford to pay.
#5 Improve Sales Targets
Businesses rely on sales to produce income and realize profits. If your company is falling behind on its debt, then consider selling more products and services to cover the debt payments. Organize a meeting between your sales and marketing teams to develop a new strategy that increases sales. Where are you leaving money on the table and what can you do to increase your brand awareness without adding to your budget?
#5 Paying Yourself is Important
Many entrepreneurs tend to sacrifice their income for the sake of failing businesses that cannot keep up with expenses. This mindset is a bad mistake. You should always build yourself a cash buffer that you can use in case your business fails. If the business has to close its doors, what will you rely on to pay your bills? Always pay yourself first and then worry about the other creditors in the business after that.
The Final Thought
Every business needs debt to help facilitate growth. Acquiring a loan for productive investment into plant and machinery, or other assets that produce income is a prudent way of using credit to grow your business. However, borrowing money to settle expenses is a bad idea that could end up costing your firm dearly. Review your debt carefully and use the strategies mentioned in this article to cut your debt levels and keep your credit score healthy.