During this up and down economy most people are thinking that personal debt is a HUGE problem. I don't discount the fact; but managing business debt can be just as much of a horrendous monster. Personally, I've struggled with debt, good and bad, but recovered. This article is to help businesses in debt jump back up on their feet, get company cash flow under control (a little bit at a time) and on the fast track to financial stability.
Business lines of credit, revolving accounts and lack of cash flow can all lead to financial trouble and if not managed properly can head down the road of maxed credit limits and detrimental financial binds. At the moment I have worked with 3 businesses that are struggling financially but would have been in a better situation if they managed their business debt to work in their favor rather than against them.
A couple rules of thumb for business credit:
Don't mix personal profits/expenses with business profits/expenses.
The fact of the matter is if you can't manage your personal finances, don't think that you'll be able to manage both. Both should be treated as two separate accounts. Mixing them together can cause nothing but headache. Smaller businesses have a tendency to do this. Do you?
Have a trusted individual handle the numbers.
When I started Hue Magazine, I knew I was terrible with numbers, so I needed a money person to manage the finances. This worked out great! All I needed was a report at the end of the month and then I knew exactly what I needed to do in order to keep the business afloat.
Use logical sense when leveraging loans.
Loans should be used to help grow a business or improve a financial situation such as renovations (which build equity), or consolidation (which releases cash flow). It should not be an excuse to have a night on the town, even if you're treating that hard-to-nail-down client.
Watch Late Fees, APR's and Due Dates
Be mindful of the WAD. Late fees are inexcusable because it's like giving away FREE money. I see a lot of business owners run into the "Debt Trap" of not wanting to pay small bills because they feel they don't have the cash flow to cover the cost but continue to pay for dinners on a daily basis without a second thought. Strange.
APR's are vitally important too! If you have two cards one with 12% APR and the other at 0% APR, use the 0% for necessary cost. I say necessary cost because 0% APR to a lot of people translate to "FREE" credit which can bite you in the butt in the end.
Finally, payment dates. These can be disastrous if missed. A once $20 minimum payment can change to a scary $200 minimum if neglected. So be mindful of the dates in which a card payment is due. Remember be mindful of the WAD!
These are just a few rules of thumb from my experience of seeing businesses fall into the "Debt Trap." It is hard during this economic time because a lot of small businesses get in over their heads with cost not realizing that if the right measures are taken many money problems can be avoided.
Doing a little bit at a time can help you see the minor details that many may have missed the first go-around. Ensure that you have someone looking at your finances regularly and do a double check because after you look at numbers for a so long, they all start to look the same.
A general rule of thumb for all finances is to ensure that you are not spending more then you make, minimize expenses and maximize cash flow.
I hope this helps. Good luck small businesses!
