Debt is such a normal state of finances that the idea of it isn’t as scary as it was a generation ago because everyone’s dealing with the same things; lease for office and manufacturing space, vehicle payments, and the business loan that helped get you off the ground.
The truth is that debt is scary, and a serious player in the success or failure of your business. Without a plan to pay your debt not just down but off you can’t get ahead. Work these debt-crushing habits into your business plan now and make a business plan to thrive rather than merely to survive.
Set a budget, stick to it, and practice tidy bookkeeping.
Budgets require so much care they’re practically living beings. You have to make adjustments based on your expenses, your income, rising prices for equipment and wages, and interest on your loans. It’s smart to set up a budget at the start of every fiscal year, and it’s wise to review it at least every quarter. Know where your money goes by tracking every single expense. Look hard at where you’re failing to stick to your budget and find out why. Don’t fix the failure by assigning a higher expenditure to the failing part of the budget unless you can cut back somewhere else or dramatically increase your income.
Pay down debt.
You’ve already got debt, that’s business. Pay it off! Pay it off at a higher rate than the minimum or else you’ll never get anywhere. You have additional bills to pay, you want to grow your business, and you want to earn a living. Hold off on incurring more debt before paying off what you already owe. You’ve got the saying, “You have to spend money to make money,” ringing in your ears, but that’s a general idea, not words to live by. Take calculated risks rather than hoping for the best. Look at your tidy books and forecast your projected income to see whether it’s worthwhile to invest in another machine or hire another employee this year or if next year is the smarter option.
Make more money.
If your income isn’t enough to cover your debt and then some, find ways to increase your business or upscale your services. Create more appealing packages, consider partnerships, find out what the needs of your clients are and fill them. Increase your rates. If you can’t make more money, scale back your expenses. Find smaller office space, use only 1 vehicle, and sell seldom-used equipment that you can rent when needed.
In addition to your accrued debt, you’re going to owe taxes and your accountant. You may want to give your employees a year-end bonus. You should be prepared for an emergency. Save at least 10% of your income to cover expected and unexpected expenses. How do you do that? Pay your savings account first. It’s a popular suggestion of financial consultants everywhere because it works. Make saving money a priority in your bookkeeping rather than an “if” and see if you don’t sleep better at night.
Feeling overwhelmed or uncertain about your debt? Want to know what reasonable debt is and how to tell your accounts are out of control? Book a consultation with Upside Accounting for sound advice from one small business to another. Contact us from anywhere in Canada to set up an in-person, phone, or virtual appointment.