Learning how to manage small business finances is the way to owning a successful business. But, surprisingly, most SMEs often take non-collateral loans to pay for non-essential bills. Unfortunately, such loans also come with high-interest rates.
By taking several of those loans, many SME businesses start to struggle with managing their finances. That happens when the high-interest loans begin to take a toll on their cash flow. Few business manage to stay afloat once that happens.
About 20% of SMEs fail within their first year, and another 30% fail within 5 years. Only above 33% of business survive beyond the first 10 years.
If your business is already facing cash flow issues, then read on to discover how to manage small business finances.
Manage Small Business Finances
1. Consolidate Your Debt
Without finding a way to manage high-interest loans, many SMEs close their doors and declare bankruptcy. If your business is struggling to repay several loans, the first step you need to take is to consolidate your debt.
To do that, you may seek the services of agencies such as Social Finance that provide a debt consolidation service. Such services offer to buy all your debts, and you can renegotiate new payment terms that favor your business.
2. Deal With Unnecessary Costs
The first step to dealing with bad debt is to find which parts of your business are making it struggle to repay its debt. If most clients struggle to repay you, you need to double up your debt collection efforts.
It is also possible that your phone bills could be higher than you can manage to pay. In that case, you can do away with expensive phone systems. Overall, get rid of any unused equipment or unnecessary expenses.
3. Revisit Your Budget
You will often find that your business is spending a lot more than it brings to cover its daily operations. If that is the case, you need to revisit your budget and prioritize costs such as rent and utility bills.
It would be best if you allocate a portion of your budget to the cost of providing services or products and a more significant amount to repaying your debt. If you are servicing credit card debt, you need to pay more than the minimum monthly payments to avoid ramping up your debt.
Overall, you need to revise the budget to reflect the current state of your business.
4. Repay High-Interest Rate Debt First
You will need to prioritize debts with high-interest rates because those siphon off more money the more you wait to clear them. Once you repay the high-interest debts, you can concentrate on repaying the low-interest debts.
Still, you should ensure that you do not default on your debts. Consolidating your debt will allow you to lower your overall interest rates while slightly increasing the low-interest rate debts.
It is a good strategy if you find that the high-interest debts make your debt unmanageable.
5. Take Some Action, and You Will Streamline Your Finances
Sometimes talking to your creditors can help you streamline your business and manage your debt better than you would by simply keeping it to yourself. Tell them your financial difficulties and let them examine your business’s balance sheet if need be.
You may then inquire if they have a hardship plan that will allow you to change the terms of your debt.
Furthermore, you need to clarify that you are willing to clear the debt faster if only the terms were more favorable under the current circumstances.
Overall, you will find that most creditors are ready to listen and even offer additional advice on streamlining your cash flow. Taking action is what is important when you need to clear business debts.
Conclusion – Manage Small Business Finances
Managing your debt is as important as other aspects of your business finances. Debt consolidation can ease your cash flow. That makes it easy to focus on collecting your debts and bringing your business back to profitability. Contact a debt consolidation service today to help you manage your debts and streamline your business finances.