Yes, it can happen to the best of us. No matter how clever we are, or how hard we work, there are times when our profit and loss statements(P&Ls) need our undivided attention – and possibly, a whole lotta help.
Getting your business out of debt might seem overwhelming but take heart. As with most things in life, it’s best to take a deep breath, create a to-do list, hunker down, and tackle one thing at a time. Check out these eight tips for creating a “fiscal course correction plan” to set your business up for long-term financial health – regardless of what your current balance sheet is saying to you.
1. Create a budget
First things first. Yes, it’s tedious, but it’s also essential. Creating a realistic budget (or, in many cases, re-creating a realistic budget if your current one isn’t serving you) is the first step toward getting out of debt – and from this first step, all others will fall into place. Think of a budget as your company’s ultimate guide to what’s working and what’s not. A good, well-thought-out budget compels you to analyze your company’s activity on both sides of the balance sheet: money in and money out. Thus, a comprehensive budget helps you see where you may be able to generate new revenue, as well as cut back on unnecessary spending and reduce monthly expenses.
2. Reduce expenses
It’s possible that after careful analysis, you’ve determined that you simply must reduce your expenses. It’s a challenge, and sometimes the necessary reductions will be difficult to implement, especially if they involve removing employee perks. (Be ready for some pushback, but remember you’re saving your business, along with your employees’ jobs.)
So, as a leader, you do what needs to be done. For starters, look for any unnecessary costs you can modify or eliminate, such as switching back to old-fashioned coffee makers in the breakroom (sorry, Keurig, but you’re super expensive!), or discontinuing “snail mail” subscriptions to trade journals that can now be freely accessed online. Similarly, it’s a good idea to revisit your service contracts. For example, can you get cheaper cell phone or internet service by switching providers? Or is it time to shop for a less expensive insurance carrier? The “leave no stone unturned” motto will pay off here.
3. Increase revenue
Next, take a thorough look at your business’s revenue stream. This is where it helps to pause, relax, and observe. Start thinking creatively about what you see. What products or services are truly making you money? Is there a way to tweak your profit margins? Can you take an existing product or service and repackage it, or deliver it to a new, untapped market? Do you have any products or services that are “just OK,” i.e., breaking even but not making money? If so, it’s possible that those products should be jettisoned. After all, you don’t want to waste time, money, and human resources on a marginal product when you could be focusing on a more profitable one.
4. Consolidate debt
This suggestion isn’t going to work in every situation, but it’s worth investigating. If your business has multiple sources of debt, one option may be to merge them. When you consolidate your debts, you have just one monthly payment that’s easier (read: less expensive) to handle than several smaller ones. And while you’re at it, if you have high-interest loans, consider speaking with your lender about possible lower-interest options. Lenders often have access to new products that weren’t available when you first took out your loan, so an occasional revisit may pay off.
5. Invest in content marketing
This tip might seem counterproductive, but if your business is in debt, investing in content marketing may be a great way to get out of the red. Why? Because unless you’re literally a marketing company (or you have an extremely savvy marketing department within your organization), your marketing efforts may be falling short of their potential to attract customers. Thus, turning your marketing needs over to a professional marketer may be the solution. By creating and distributing high-quality content, they may be able to help you attract more customers and generate more revenue.
6. Look into tax deductions if you work from home
The government sometimes smiles on small businesses! If you own a home business, you may be eligible for tax deductions that can help reduce your financial burden. Check ‘em out: a few common tax deductions for home businesses include home office expenses, equipment purchases, and business-related travel expenses, including mileage credit if you drive your own vehicle to see clients.
However, each state has different tax laws, so it’s important to be mindful when claiming home business tax deductions. Always seek the advice of your accountant (or a similar relevant tax authority) to ensure you’re claiming the deductions appropriately. Online resources can also help you navigate the process. Be sure to check out the latest tax preparation software – many recent improvements have been made in the user-friendliness area.
7. Don’t forget your credit score
Paying attention to your credit score is another essential step when working to get your business out of debt. Think of your credit score as a personal financial “report card” that other businesses – most importantly, lenders – can scrutinize. For example, lenders know that credit scores reflect the likelihood that a borrower will pay back a loan, and a low credit score can make it challenging, if not impossible, to secure loans or lines of credit. Conversely, an excellent credit score can make you eligible for financial assistance when you need it.
Review your credit report annually and remove any inaccuracies or errors that could negatively impact your score. Making timely payments on your current loans and lines of credit will help you maintain a strong credit score, or help to improve a weak or damaged one. And finally, using your credit cards responsibly and keeping your credit utilization within reasonable limits are other key strategies that will improve your score over time.
8. Get paid on time
This might seem like a “Duh” tip, but have you ever had to hunt down a business or service provider and actually ask for an invoice? I have, and I always wonder how they’re surviving without being paid! It’s surprising how many otherwise-efficient businesses neglect the billing end of things. So, to make sure you’re not “one of those people,” do a quick internal audit to ensure your business has a comprehensive invoicing system for getting paid fast, and on time. Best invoicing practices include setting clear remittance terms, offering customers multiple payment options, and invoicing as soon as work is completed.
That’s it for today! Thanks for being a reader/follower, and I’ll see you again soon. Please send your requests for future topics—in fact, today’s article came from a reader’s suggestion! I always appreciate your comments, feedback, and support.