Debt is a natural part of the business process for most companies. They need initial capital to get their business up and running. At other times, they might need to purchase new equipment or goods to help their business stay afloat. Debt management can be a bit tricky if you have never had to juggle creditors before.
For a few tips to help you effectively manage your debt as a business owner, this complete guide will help:
Know What You Owe
The first step to effectively managing the debt you incur as a business owner is to know what you owe and to whom you owe it. Take the time to sit down and make a list of all your obligations, whether that means credit cards and/or loans. If you have to make a monthly payment on something, it should make it onto this list.
Include important details such as the amount owed, the interest rate, and the expected monthly payment. The idea here is to get a comprehensive look at your overall finances so that you can smoothly move forward making plans to pay down some of this debt with excess funds.
When you made your list, did you find that you had more creditors than you thought? Managing your company’s debt can easily turn into a full-time job if you borrow left and right to keep things afloat. One way to make things easier is to consolidate your debt. Oftentimes, this might also come with bonuses such as a lower interest rate or extended payment terms which can decrease your monthly payments substantially.
Cut Back on Expenditures
Figuring out how much money you owe might make you rethink some of the aspects of your business that you used to believe were non-negotiable. Maybe you don’t need to supply fancy coffee for your employees anymore. Perhaps there are ways you can save on utilities by adjusting the temperature of the building. Start to explore creative ways to cut costs to keep your debt as low as possible.
Pick a Debt Payoff Method
There are several schools of thought on the best way to pay down debt. Many companies like the snowball method where you will pay off your smallest debt first. Once this is paid off, you take the money you would ordinarily spend on this debt and apply it to the second-smallest debt. You gradually get a larger payment amount as you work your way toward paying down the largest of your debts.
The alternative is to pay off the debt with the highest interest rate first because it is costing you the most money. When you finish paying off this one, take everything you were putting toward it and apply it to the debt with the second-highest interest rate until all debt is taken care of.
Managing Debt as a Business Owner
Managing your debt as a business owner doesn’t necessarily have to be painful or complex. If you need some help getting started, Compass Accounting can assist to discover a plan that will work well for your unique business.