Debt can be tricky to navigate, especially if your business has been in the red and struggling to get into the black for quite some time. Thankfully, there are many ways to get your business out of debt and increase your long-term financial health as you do so. Below, Universal Accounting offers seven ways to tackle your debts and get back on track with your finances.
1. Put Yourself in Control
Step one is to identify where you are in terms of debt. How much do you owe and to whom? Start by separating your business and personal accounts. Then, get your financial house in order. What are your net earnings? What’s left over after paying bills, rent or mortgage, credit cards, and other liabilities? How much money can you afford to put toward debt repayment every month?
2. Have an Effective Invoicing Process
Timely payments are essential to your success. That’s why upgrading your invoicing software is an important step in ensuring that your business gets paid on time. By investing in a quality invoicing system, you can save yourself the hassle of chasing down late payments and worrying about cash flow. In addition, a good invoicing system can help you keep track of your spending, budget more effectively, and make it easier to keep close track of your overall financial health.
3. Create a Budget
One of the first steps in any debt-reduction plan is creating a budget. Think of it as a spending plan that includes what you need to spend and how much you can afford. Creating a budget helps show where your money goes every month and helps identify areas where you can cut back or save more money.
4. Reduce Expenses
It’s common for small businesses to operate on a thin margin. But if your business is in constant survival mode with little room to breathe or plan, you may want to examine your expenses and look for ways to trim them where possible. Doing so can set your business up for long-term financial health. This is one of many simple steps you can follow from the Universal Turnaround Model.
5. Increase Revenue
Take a look at your current product offering or service mix, and think of ways you can pivot to produce more revenue. Perhaps your customers can benefit from an add-on service to use your product in more situations. Or maybe there’s another customer base you can tap into with a different kind of product that costs less to produce than what you currently offer.
6. Consolidating Debt
As you begin working off your debt, consider consolidating all your various debts in one place. Consolidating can simplify your financial life significantly and make it easier to manage multiple payments.
7. Improve Your Financial Standing
To enhance your financial situation, form an LLC. Due to the tax benefits, you may owe less come tax season. Various states have different rules for forming an LLC, so check the details in your state before proceeding. If you don’t want to do the groundwork yourself, a formation service can save you money on lawyer fees.
Healthily Growing Your Business
Getting out of debt isn’t an easy process, but it can be done with time and effort — as long as you’re serious about your goals. Focus on getting paid, sticking to a budget, cutting expenses and finding ways to increase your revenue as part of your main goals, but don’t let mistakes and slip-ups derail you. Instead, use them as learning experiences, get back on track, and focus on what matters most — healthily growing your business.
Learn more how you can address cash flow concerns with “Red to Black – a turnaround guide for accounting professionals” when you work with business owners as their Profit & Growth Expert.