Running a business while avoiding debt

Whether you’re running a large scale business, a small to medium enterprise, or you are a sole trader, getting into debt is incredibly risky and could well lead to further debt. It’s impossible to run a successful business unless you are spending less than you are bringing in; this is pretty obvious, but too many businesses seem happy to make a loss in the first few years, believing that profits in the future will make up for it. Unfortunately, if you start struggling with debt early on in the lifetime of your business, it could well be that you run out of funding before you ever reach the stage of making substantial profits. Unless you have a strong handle on the finances inside your business, you could be running up huge amounts of debt that could cripple you in the future; remember, debt often leads to more debt so it’s a vicious cycle once you enter the red.

Before you start spending more than you can afford, sit down and reviews your finances so you are entirely aware how much money you have, and how much you can spend. Try not to make too many wild predictions of future profits, stay grounded and try to budget based on facts rather than what you think you might make in the coming months. It’s entirely possible that when reviewing your finances, you realise that there are clear savings that your business could be making. For example, you might be spending too much on office supplies that you don’t need, or extortionate phone contracts. All these things add up and can quickly become a huge burden on your financial situation.

You’ll also want to make sure you know exactly how much you want to take out of the business on a personal level. How much money are you paying yourself? If you’re taking too much out of the business, then obviously it is going to struggle to make substantial profits. Try to come up with some sort of personal budget so you know exactly what you need to take.

Another thing to make sure is that you are achieving the results you are looking for in terms of marketing. If an advertising campaign was bringing in new customers six months ago, it won’t necessarily be doing the same now. Far too many businesses keep spending on marketing techniques that are no longer working or have been exhausted. You need to keep adapting your marketing so that you’re on top of your finances and the market.

If you begin to get into small amounts of debt, try to analyse exactly how you are going to get out of it. Don’t just wait for it to build up, take action as soon as you can to avoid any problems. Make sure you talk to your bank about any overdraft charges so you don’t get caught with massive daily charges that go under the radar.

One of the worst possible things you can do is to try and pay for a loan by taking out another loan. This is practically criminal if you want your business to survive for years to come. You’ll quickly find the interest payments becoming too much to handle and you may never recover. It’s far better to try and tackle the problem when it initially arises, talk to your bank about your loan if you are having difficulties. If you have a strong set of finances and good solid predictions for the future, they may well be more understanding than you think.

Seek financial advice as soon as possible if things start to look bad. If your sales start to drop dramatically or your expenditure is out of control, having a professional come in to review your situation could ultimately save your business. If you try and tackle every problem on your own, you’ll just end up in more difficulties; sometimes problems are too big for you to handle and need a professional, objective view to be solved. Don’t be afraid to talk to people about the problems you are facing, since nearly every business experiences difficult times during its lifetime.