10 Effective Ways to Manage Business Debt
No one wants to owe, but there are times when this process is inevitable both large and small scale. Likewise in a company.
The reliability of managing a company’s debt becomes a skill that must be mastered because there are almost no companies that don’t owe.
This is because establishing a company requires quite a lot of costs and is difficult to meet with personal income.
Debt is an obligation to pay back what has been received. In debt, this is a problem. Where the company is able to owe but it is difficult to pay. Having a large amount of debt will certainly pose a big risk for the company as well.
But that does not mean the company must not owe. Managing corporate debt does indeed need hard work. But if you can’t manage your company’s debt well, the opportunity for the company to continue to grow will also be even higher.
Businesses must take into account the current conditions and how they will develop.
Here are some things you can do to be able to manage the business debt well.
1. Make A Mature Plan
Starting a business with debt is already commonplace and can be found everywhere. However, this paralysis does not allow borrowers to make loans carelessly.
When deciding to owe and before the debt is filed, you must plan carefully so as not to jeopardize the company’s finances. The purpose and posts that will use the loan funds should be clearly recorded in detail as well.
This plan can be used at the same time to convince the lender because the purpose is clear and shows the ability to pay according to maturity.
2. Customize with Needs
Make a detailed list of needs and financing budgets. Try to cover financing that is not too heavy with savings or other sources that are at a lower risk. If there is a lack of capital that is difficult to obtain, then you can choose debt as a way out.
Here it should be noted that debt is the last choice of financing your business. Also, avoid buying goods that are not really needed to reduce the company’s budget.
3. Customize the ability to pay
If you have decided to owe, then borrow according to your company’s ability to pay it off. Consideration of the ability to pay off debt can be seen from how much profit your company can get each month.
But you should not use all profits as a tool to pay debts. Make sure there are funds available for further capital, promotion, and investment costs. Borrow with a realistic amount so that it is not burdensome when payment is due.
4. Focus on Debt Objectives
Try to focus on the original purpose your company owes. Meet the needs that are predetermined. Your assertiveness in the use of these loan funds will reduce the company’s financial risk worsened later on.
5. Calculate Risk
Risk can occur at any time, however small. Anticipate these risks by preparing a backup plan so that the company can face the worst. It also helps companies to be more careful in using loan funds.
6. Pay on time
In a debt agreement, there must be a principal, interest, and maturity. Debt arrears means increasing the burden of the company. Not only the principal debt that is not paid, but interest on the debt will also increase.
Moreover, coupled with fines due. In addition, the financial services company where you place the loan will see no goodwill from your company to pay off.
And usually, non-bank financial services are very strict about this. It could be a debt collector who immediately intervened to collect.
7. Avoid Paying Debt with Other Debts
Maybe you’ve heard the term ” dig a hole, close the hole ” which means paying debts with new debt again. This is legitimate, but also risky. Paying debt using other debt will not complete the loan, but instead adds to the company’s burden.
Especially if the loan is done in a fast way and greater interest. If this is the only way, then make sure the financial services company chosen is trustworthy, has a legal umbrella, is safe, and provides comfort in terms of repayment.
8. Separate Personal and Corporate Finance
Small businesses tend to combine personal money with company profits in the same account. If this method continues, it will be difficult to monitor income and expenses. Profits and losses resulting from the company will not be seen clearly.
Policies and money management for individuals and companies are indeed different. Especially if it has to do with debt. Do not let personal money run out to pay a corporate debt or vice versa.
Or it could be that the company’s profits and profits should be used to pay off capital debt installments, other investments and so instead are used for personal gain.
9. Perform Negotiations and Cooperation
When your company decides to go into debt, you should first negotiate with the lender. With good negotiation, there is a possibility that your debt burden is slightly reduced. It could be that you get a loan interest or mild payment terms.
Apart from negotiations, there is also good cooperation. This collaboration will foster mutual trust between you as the borrower and the lender. The ease of making the next loan can be an example. Or even the lenders want to work together to develop your company.
10. Make Neat Notes & Books
In addition to marketing strategies, bookkeeping is also the most important thing to consider in the development of a business. Bookkeeping is the process of collecting and recording data and information relating to business finance on a regular and detailed basis.
Organized here is a must-do routine and disciplined transaction records every day. Detailed realized by recording anything related to company finances ranging from the capital, costs and income, obligations, and so forth.
This includes debt that should be written in detail both the amount of the loan, the number of installments, and the term of payment.
With a good record and bookkeeping, there will be many benefits, others that can be obtained by the company. The movement of the company that is run will be seen more clearly, able to control operational costs, find out the assets owned, minimize the risk of losing assets, and much more.
Therefore you should start learning about financial accounting or company transactions even if it is simple. You can also ask for help from an assistant or accounting software so that everything is recorded properly.