Research by The Telegraph newspaper found that 60% of new businesses fail within the first three years. One of the biggest reasons for this is debt. Not only can too much debt land your business in hot water financially, it also prevents many businesses from expanding and taking the next steps.
However, growing your business and reducing your debts doesn’t have to be an either/or situation.
By creating a long-term plan and putting the time you spend paying off debt to good use, it’s possible to grow your business and shrink your debt at the same time. Here’s how to do it.
1. Build Credit
A good credit score is immensely valuable to your business, so it’s in your best interests to make timely repayments. Proving that you are a reliable borrower makes your business much more appealing in the eyes of potential future lenders, which is bound to come in handy when it’s time to secure a loan for further investments.
2. See the Bigger Picture
It always pays to see the bigger picture in business. Looking at today’s costs and profits isn’t enough to ensure effective financial management. You need to consider how costs may change down the line and carefully estimate the returns you’re likely to see on your current investments. Of course, it always pays to be convserative when calculating your profit margins in order to prevent overspending.
Long-term projections allow you to manage your debt effectively and carefully balance repayments with investments and other expenses.
3. Prioritize Your Debts
Take a careful look at your debts and prioritise the account with the highest interest rate. It’s worth paying more than the minimum if you can, as this saves money in the long term that you can then use to settle your other debts more quickly, too.
4. Automated Payments
As a busy business owner, it’s all too easy for payment deadlines to slip your mind. Setting up automated repayments is an easy and convenient way to avoid this. Some lenders even offer discounts as an incentive to set up this service, so automated payments could save you significant money over time, not to mention stress.
5. Debt Consolidation
Debt consolidation is the process of combining multiple loans into one. It means taking out a new loan to pay off all of your existing debt, so that you can then focus on a single account. Debt consolidation loans can lead to a short-term dip in your credit score, but you should be able to reverse this so long as you keep up with repayments. This option may not be suitable for every business but it’s certainly worth looking into if you find yourself overwhelmed or unable to keep track of your finances.
6. Create Cash Flow Projections
Failing to prepare for dry spells is a surefire way to accumulate debt and enter a cycle of feast and famine. It’s important to create cash flow projections so that you can manage your expenditure and create a cash reserve accordingly to tide you over when times get tough. Understanding and managing your cash flow effectively is essential for your business to stay afloat. It also allows you to identify the best times to invest and shows you when to hold back.
Creating cash flow projections can be complicated and time-consuming, so this is definitely something that you should ask your accountant for help with. Furthermore, your accountant will be able to help you understand market trends so to ensure that these projections are as accurate as possible. This in turn allows you to continue growing your business without risking further debt.
7. Cost-Effective Marketing
Marketing is an essential part of growing your business and it doesn’t have to be expensive. Social media allows you to reach potential new customers without spending a huge amount of money. However, bear in mind that whilst social media platforms are free to use, creating content does take time and resources. That being said, content marketing is still a very cost-effective way of growing your business, so it’s worth redoubling your efforts to ensure the growth of your business without spending a small fortune on advertising.
It Pays to Repay
Paying off debts allows your business to grow and thrive. The sooner your debts are paid off, the stronger your business will be. Debt can cause your business to stagnate, so it’s essential that you manage your finances effectively, and seek the help of a professional if necessary. By being smart about repayments, you won’t have to choose between reducing your debt and growing your business. Making the right decisions today will ensure a thriving, debt-free business for tomorrow.