As a credit control expert, I often come across the accounts of “high-turnover” businesses, who are nonetheless, drowning in debt and struggling to show a profit. Usually it’s because they don’t have good systems in place to ensure bad debt is reduced or illuminated.
Today I want to help you avoid getting into debt in the first place and then advise you what to do if and when it happens again.
Here are a few suggestions:
- Manage your Cash Flow
Cash is King and it is the life blood of any business. It is affected by your accounts receivable, inventory, accounts payable, capital expenditures, and incurred debt. One of the biggest reasons why small businesses fail is that they are not paying enough attention to where their cash is either going or being held up. The result is that they fail to recognize and react to an impending cash crisis. You can improve cash flow by using software to help manage your business. Many accounting software packages offer a full range of features, such as financial reporting, payroll management, and billing and even debt collection.
- Avoid Loans for your Business
Before applying for a loan, make sure you weigh all of your other options. Can you “bootstrap” your business? Pay for expenses out of your income? Grow as your income grows? If you have to borrow for your business, consider if you will be able to repay a loan. Before taking out a loan, make sure to look for other options first, such as crowdfunding or startup incubators.
- Do a Budget and Stick to It
Sit down with your accountant or finance manager, set a monthly budget, and analyse where you can cut costs and increase efficiency. Even minor changes may add up to big savings in the long run. You could consider equipment leasing and financing instead of purchasing your equipment outright. You can alternatively buy second-hand or reconditioned equipment. Look for ways to improve invoicing and receivable income. Make sure your invoices are sent out on time and that late payments are accurately tracked. Perhaps, get your clients to pay upfront or pay installments, rather than one lump sum after delivery. You can require customers to make an initial deposit when an order is taken, and offer small discounts to those who pay their bills quickly.
- Minimise Your Tax
You work hard for your money, so why give it away? It’s your job to find ways to minimise your tax exposure. Talk to your accountant and finance manager about the best way to minimise tax or to delay tax payments to the government. Make sure that you are maximizing your tax deductions. Every dollar you claim saves you 30% in tax.
- Outsource to the Philippines
Some jobs can be done more effectively, efficiently, and cheaply by people outside of your business. Popular jobs to outsource include: managing and creating web content, designing and writing marketing material, and handling minor administrative tasks, such as, data entry, answering inbound and outbound phone calls, accounts payable, account receivable, and debt collection. Actually, pretty much anything. I love the Philippines and I love my team in Angeles City, Pampanga (Hi Geneva and team!). I can highly recommend Nova Team Solutions as an outsourcing solution for pretty much anything you need to get done.
- Business travel – don’t bother
This used to be one of my biggest expenses apart from staffing, but now I rely on web conferencing for 100% of my meetings. Post COVID-19, everyone in the world is more than happy to sit on a web conference, rather than meet in person.
- Prioritize debt payments
Talk about the debt with the highest interest rate first. Most likely, that will mean concentrating your energies on paying off credit cards. However, if you’ve personally guaranteed any of your company’s debt – meaning, if a creditor or supplier can come after your personal assets, make sure paying off those debts become a high priority as well.
- Get a Pro-active Accountant and Financial Advisor
I have a great accountant, financial advisor, business mentor, business advisory group. These trusted advisors should also be able to help you set up these systems I have been talking about. Find one that that has all these services rolled into one. A great example of a pro-active advisory services company is “Liston Newton Advisory” . They can help you set up the systems you need to avoid bad debts.
- Outsource your debts to a debt collector as soon as you can
Don’t try and do your account receivable yourself. You are an expert in your field and similarly, there are great debt collection agencies that collect debts and are good at it, so use them. It’s also important to outsource your debts quickly. The quicker you outsource the higher the chance of recovery.