Accumulating debt is something that can happen without you really noticing. Other times, it may feel like it is something completely out of your control. Regardless, staying out of debt, whether in a personal or business capacity, is possible. It is also possible to get out of it. In just a few minutes, find out some of the most effective ways of managing debt, as well as how enlisting help in the form of accounting services can help you do it.
Tips on effective debt management for the small business owner
Unfortunately, whether we like it or not, the aspect of risk has a large place in the running of a business. Planning for unexpected events such as pandemics, recessions and legal troubles is not always conceivable. If you tried to, it is likely that you would adopt an overly-cautious approach which could hinder your success. Despite how well your company may be thriving, sometimes the odds may simply be against you and your small business.
If you find yourself falling into the slippery slope of debt, try not to panic. There exist various options and strategies that may help, but they do require you to leap to action to make them work. If you sit back and allow the panic to take over, debt may get the worse of you. We have gathered some useful tips that may help you to manage your debt effectively and take back control of your company’s finances.
Understand the fundamentals of your situation, and take action
If you are facing an amount of debt that is steadily increasing, hoping for the best while sitting idly by is not going to help. Failure to make payments on your debts can result in dire consequences, such as the loss of employees, expensive court cases at the hands of creditors as well as the seizure of stock – depending on your type of small business.
Perhaps worse still is the risk of government intervention, which will occur if you fail to pay taxes to SARS. No matter where you reside in the world, most governments have the jurisdiction to get the money they are owed, some way or another. In order to prevent this, it is advised that as a business owner, you apply constant vigilance to the debt situation instead of turning a blind eye.
Enlisting accounting services from a trusted small business accountant, such as SureBooks, can only help you in this endevours. An experienced company offering accounting services will help you to better understand the specifics of your situation and the best strategies to help you alleviate your debt.
Focus on priorities despite the looming debt
Even though your company may be facing a significant debt, it is important to hold fast to your priorities as a small business owner. While each and every company is different, there are a few basic priorities that debt experts believe should be focused on, such as:
In many cases, a company cannot function without its employees. Even though your financial situation may be dire, cutting salaries is not advisable. Failing to stay on top of employee payroll could result in severe penalisations, as well as employees losing morale and trust in you as an employer.
Cutting insurance during a time of intense debt is not advisable, although it may appear to be an appealing way to save some money. Your company, especially now, requires the professional indemnity and public liability cover that many insurance packages offer.
Whatever happens, your business is likely to require lights and running water. Failure to pay for your most basic expenses because you are concerned with your increasing debt.
Enlisting accounting services for payroll during this difficult time, if you can afford it, is an excellent way to keep track of your most important duty as an employer, which is looking after your employees and ensuring their efforts go rewarded.
Increase and revive your revenue
This point is, naturally, easier said than done. There are ways, however, of boosting short-term revenue that can help you reduce your debt enough to get you somewhat back on track:
Sales, sales, sales
Offering your loyal, and new, customers reduced prices or mark downs can generate and encourage fast payments, which will help to improve your company’s cash flow.
Get to know your customer-base
Asking your customers or clients for feedback on your business can help you improve your services and appeal. You may then be able to meet their needs even better with a tailor-made offering.
Make use of accounting services
Receiving accounting services counsel from your trusted small business accountant will help you in your efforts to quickly increase revenue. Consider sharing your business plans with your accountant, as they have years of financial experience and knowledge of the local industry to offer.
Reduce your company’s costs
Perhaps one of the most effective ways of preventing further debt build-up, and alleviating current amounts, is cutting down your business costs. Make use of spreadsheets and finance software recommended by your accounting services provider in order to have a clear overview of your company’s expenses. The following are some basic tips to consider should you wish to reduce costs:
- Think about making some employees redundant, but at the same time, beware of hiring too many short-term individuals instead – as they can become even more expensive in the long run.
- Reduce the amount of space your business leases or rents, particularly if you do not absolutely need it.
- Negotiate with suppliers for reduced prices. There is no harm in asking your long-term suppliers for discounts. In fact, many may surprise you with their willingness to offer reduced rates.
Seek advice in the form of accounting services
Enlisting help in the form of accounting services is a sure way to improve your business’s outlook. Should you be unable to make back the money required to tackle your debt, your accounting services company may advise you on the best way forward, such as filing for bankruptcy. This is a huge process in itself, and one that you will want to do properly. Ensuring accounting services for this unfortunate leg of the journey is a wise decision.
How to prevent falling into personal debt
Debt is just as common in a personal capacity as it is with businesses. It is always good to start with preventative measures, if one can help it. The following strategies may assist you in staying well away from the slippery slope that is personal debt:
If you have to use your credit card, rather do not make the purchase
While it is true that credit cards come in handy in a variety of diverse situations, using them to purchase something that you could not afford otherwise is not a wise idea – especially if this item or service is not a complete necessity. Overusing a credit card is one of the easiest ways to fall into debt. Oftentimes, they allow us to live under a false illusion of uncapped funds.
Financial buffs advise that if you cannot pay for in cash for something in the personal capacity, then you certainly cannot afford it with a credit card. In the same sense, it is recommended that one refrains from using their credit card for cash advances if it can be helped.
Keep an emergency fund
Also referred to as a “falback fund,” emergency funds or savings are a highly important part of personal finances. If you have the opportunity to save extra money from your income, ensure that you regularly contribute to your emergency fund. Professionals advise, that if possible, it is prudent to save up at least 6-months’ worth of salary respectively.
Should you encounter a problem, whether that be losing your job, being gravely injured or becoming ill, you will have some spare money to use. Further, this emergency fund will help you if you need to make a rather large, unexpected purchase. You will not have to dip into your personal funds that you need for day-to-day survival and other expenses. Doing so is what often contributes to the accumulation of debt.
Forgo the wants, favour the needs
Sometimes, distinguishing between wants and needs is more difficult than one might imagine. Weekly rituals such as expensive meals or costly outing specials that you value may have become so ingrained in your schedule that they now present as needs. If you are struggling with saving money, and find yourself teetering close to the clutches of debt, cutting out unnecessary spending habits is a wise decision.
This is easier said than done, as these small pleasures are what make life exciting. However, the alternative, debt, is a complicated one that should be avoided if you can help it. Think about sitting down and writing out your personal expenses and point out which of them are wants or alternatively, needs. One great way of keeping track of expenses is through the use of master sheets.
Master sheets, on whichever application you may be using, can be updated on a month-to-month basis. They work excellently for those with multiple cards and accounts too, as the tracking of usage and payments on grids is an organised and clear-to-see method.
Do not neglect your credit card balances
When the awful time to pay your credit card balances in full rolls around, try to the best of your ability to pay them in full, at once. This is because one of the best ways to keep maintain control over your spending is through paying your credit card balances as you go, or at least very regularly.
Bank on a budget
Budgets are infamous for being spoilers of fun. However, they are highly effective measures for saving money for numerous reasons. If you choose to budget your weekly or monthly expenses, you will have a much better idea of where exactly your money is going as well as what you can afford to spend it on. Each month, if possible, you should allocate a specific amount to put into savings. There are a plethora of budget-assisting mobile applications that can set you on the right path and send you reminders daily.
Limit the number of cards in your wallet
Should you find yourself making multiple payments on different cards, you may find it difficult to properly track your expenses, as well as find that you have gained multiple cases of tacked-on interest. This is a sure way to find yourself in need of debt consolidation if you do not keep an eagle-eye on your multiple purchases and which card you used for each.
Coupons save cash
Many tend to frown upon coupons and the collection of them. However, groceries certainly fall under the “need” category, so why not do your best to pay as little as possible for them. A few coupons may feel insignificant, but sooner than later you may discover that you have saved hundreds each month. You can use the excess to add to your emergency fall-back fund as well.