An estimated 79% of business firms carry some debt as of 2021, up from 71% of businesses carrying debt in 2016. This indicates that business debt is a common tool used by various companies to help build their empires.
However, it is also true that carrying excessive debt or unproductive debt can sink a business before it even gets up off the ground. That is why all businesses should carefully consider how to properly manage and eventually eliminate debt from their books.
Establishing and maintaining a good credit record is extremely important when creating a situation where you can continue to invest in the growth of your business. Business News Daily offers this recommendation for how you can work on keeping your business credit stellar:
To keep good credit, pay off all your debt funding as soon as possible. For example, don’t let your business credit cards run a balance for more than a few weeks. Likewise, don’t take out loans with interest rates that you can’t afford.
The temptation to borrow more than you can afford to pay back will always be there. However, that is a bad option to take when you are trying to successfully grow your business. You should try to maintain your business credit first and foremost to continue to expand your empire.
Staying on top of invoices and cash flow is hugely important when looking at managing business debt. It will be completely impossible for you to pay your business debts at all if you are unable to manage your own invoicing systems. Companies must stay on top of the clients that are consistently late on their payments. Creating a greater sense of urgency for those clients is a great way to begin progress on getting payments out of them. After all, it is absolutely essential to continue to receive payments in order to service debts.
Are there certain investments that you are concerned about that aren’t producing the return on investment (ROI) that you would hope they would? If this is the case for you, then it is time to reconsider making those investments at all.
If you lack focus on ROI for your expenses, then you might suffer the following negative results:
Spending that doesn’t produce results for your company
A lack of liquid funds
The urgent need to borrow more money to pay for day-to-day expenses
All of these things can cause you to have greater business debt issues. Instead of falling into this kind of trap, make sure you are thinking about what your ROI is for any given action that you might opt to take.
It might be necessary for you to set aside a special amount of time to review your financial records. Improving your business’s financial situation means knowing where you stand with things in the first place.
Therefore, you ought to set aside some extra time to review where things stand now and what you can do to make better choices moving forward. This might seem like a small step in the right direction. However, if you are going to get serious about managing your business debt, then there is no question that you must start with small steps that make a difference for your bottom line.
Paying down your highest-interest debts first is the way to go. Those are the debts that are taking the biggest chunk out of your budget every month. However, you can improve your standing by working on paying them down first. As you eliminate those debts, you can use the money to make payments on other debts on your balance sheet.
Keep working on this system until you have completely satisfied all the debts that you have accumulated in your business.
For more information on how to better manage your business debts today, please contact us at Foster Financial CPA today.
Tax Tips for the Self-Employed – Foster Financial
Analyzing the Cost vs. Benefits of Business Expenses
Strategies for Optimizing Your Investments