Is your small business struggling with debt? Do you feel overwhelmed every time you think about the amount you need to pay your creditors? The first good news is that you are not alone.
A report published by ASIC (Australian Securities and Investment Commission) in 2018 revealed that in every six people, one is struggling with debt, including SMEs. This is because many SMEs rely on personal finances to fund their capital. Thankfully, there are a few steps you can take to get your business out of debt. Here are nine of the best.
Do Your Accounting Like a Professional
Most SMEs do not see the need of getting their accounts done professionally, especially in the first few years of operation. Reason being, they feel like the work is too little to hire someone else to handle it. Sadly, this has led to many experiencing misappropriations of funds that eventually lead to unforeseen debt.
To get your money in order as an SME, you need a professional handler. https://thekalculators.com.au/ is ideal for SMEs. The team is professional and affordable.
Revise Your Budget
Another loophole that leads to a lot of SMEs in debt is unrealistic budgets. When starting a business, you need to be willing to start small and grow big. Fund what you can and avoid unnecessary expenses. Going through your budget will help you plan appropriately.
If it’s not urgent, it doesn’t have to be on the budget list for now.
Construct A Payment Plan
Two factors require a payment plan. First, if you are bringing in new equipment, request your supplier to give you a payment plan that you can comfortably work with. Secondly, if you are already in debt, coming up with a payment plan for your creditors will make the burden seem lighter. This way, you can concentrate on developing your business as you pay off your debts.
Contact Your Creditors
Once you have a payment plan to clear off your debts, contact your creditors to keep them informed. Communication is vital to avoid confiscation of assets that might help bring in more revenue. Also, talking to your creditors gives you an avenue to create better credit terms and maybe even a due date extension.
Cut Down Costs
If you want to make more and spend less, this is the time to exercise frugality. Find avenues to manage your current resources more sustainably. Negotiate prices with suppliers or look for those with more competitive prices.
If an expense is not necessary, do away with it. For example, you do not have to own an expensive office as you start a consulting firm. You can spare a room in your house for business purposes or cost-share with another start-up.
Contact Your Debtors
One of the biggest challenges for SMEs is getting the invoice paid after a service has been delivered. This, consequently, leads to a business having unstable cash flow. If your clients are not paying on time, you should come up with a plan to get the funds as soon as possible. For example, you can have a policy that encourages clients to pay in installments as the work progresses.
Alternatively, a client can pay half before the work begins, and the other half before you deliver the final output. Let them sign to such agreements so that in case of a default in payment, you will have substantial evidence for seeking legal assistance.
Find Creative Ways to Generate More Income
It may be that the services you currently offer are not as profitable as you thought. It may also be that your business needs time for it to find its ground in the market. Sadly, your bills do not wait for such breakthroughs. This is when you have to have a meeting with yourself (for sole business owners) or with your board members.
The meeting should be aimed at discussing other quicker, reliable, and sustainable ways of getting money into the bank. Think about partnerships, short term, and long term goals. Maybe benchmarking with similar businesses will help you get a different perspective on how to run yours.
Also, you can make things better by either expanding your services or looking for a side hassle that will not need a lot of capital to start. The aim is to get the cash flowing in so you can get rid of your debts.
Avoid More Debts
You cannot make things better by digging deeper into a hole you are already trying to get out of. The more debts you accumulate, the more you keep piling up interests from these loans. From a more precise angle, your business is losing more than you think its gaining by accumulating more credits.
If you have to look for another source of capital to finance a project or bring in more supplies, consider asking friends and family. In most cases, you might not have to pay back such loans. If they have to get paid, then you will either pay them back with less interests in comparison to banks and lending firms, or no interest at all.
Seek Professional Help
In some cases, you might have tried everything you can and still find it challenging to get out of debt. It might be that the root of the matter is more in-depth than you initially thought. In such cases, consider seeking professional help. Debt consultants will offer relief solutions that are practical and at the same time, give you advice on how to evade future debts.
Barack Obama once said, “Asking for help isn’t a sign of weakness, it’s a sign of strength. It shows you have the courage to admit when you don’t know something and to learn something new.”
Remember that the first step to finding debt relief is by looking at the leading cause of the problem. When your accounting books are transparent and verifiable, you will know which costs to reduce and when to seek professional help. By following the above tips, you and your business will be on the way to financial freedom.