Through the course of starting and growing a business, it’s likely that your business may accumulate debt. While this is normal, it’s important to manage debt so as not to cripple the business’s finances. As an entrepreneur, it’s also important not to let your personal finances interfere with your business goals. Debt doesn’t have to be a deterrent to your financial and business goals. There are ways by which to manage it successfully, controlling your finances and taking one of the biggest stressors out of running your business.
Be Realistic About Your Budget
When building a budget, it’s important to keep unexpected costs in mind. If not, these costs can creep up out of nowhere and ruin your business. Building them into the budget and/or setting aside extra money to cover them is necessary for financial management. An Entrepreneur.com article entitled, “6 Ways to Dig Out Of Debt” states, “If the debt keeps piling up, then it probably means the company’s current budget isn’t really working out. Create a budget based on the business’s current financial situation. Make sure your business’s revenues can more than cover your fixed monthly costs like rent and utility bills. Then, allot a portion of the budget for variable costs, such as manufacturing materials.”
If you haven’t yet launched your business, plan for debt management in your business plan. Ideally, you should have approximately six months worth of expenses before you start. When making your plans, try to borrow less and find other methods for raising start up capital. MoneyManagement.org published an e-book titled, “The Entrepreneur’s Guide to Personal Finance,” which states, “A lender will want to know that you have a good reason for borrowing money. This is why it’s crucial to have a business plan that will show that your business will fill a need, there’s a market for your product or service and that you’re borrowing money to cover only the essential expenses. Remember, the less money you ask for, the greater your chances of getting approved for the loan.”
Incurring debt is a normal part of life for many people, but left unchecked, it can destroy your business. Being smart about managing your debt and operating with a realistic budget is key to increasing your chances of success.
This article was written by Alaina Brandenburger for Small Business Pulse