6 Effective Ways in Managing Debt in Business

managing debt in bussines

Debt is very helpful for any of you who run a business. But even though debt can help you meet every need of your business, sometimes having a very large amount of debt can also put your company at risk, even the business you are running will go bankrupt due to the business debt you have.

We recommend that you manage the money into a principal where you can return the debt and get capital from what you have borrowed beforehand so that the debt you have does not become a burden or a loss for you. 

Here are 6 effective ways to manage your business debt:

1. Doing Careful Planning     

Managing debt should be done before you apply for debt. Plan as carefully as possible to find out the amount of capital needed, what things will use the costs of debt, and so on. Don't forget to consider your ability to pay off this debt. Calculate as realistic as possible involving all the risks from your business plan. The lender also wants certainty that the funds they lend will be repaid according to the agreed maturity. Therefore, do careful planning.

2. Must Be Based On Current Needs

Debt is the last step that is usually taken when a businessman has run out of capital. Of course, this is also done based on current business needs. Let's just say that the current interest rate is falling. You are also tempted to apply for a loan from the bank even though you don't need it. It will only leave you looking for reasons to keep doing it. For example, buying a computer for the office with the excuse of avoiding price increases next year. This will only add to the debt list.

3. Short-Term or Long-Term Debt?

The right type of debt will help you in paying it off later. In general, debt for businesses is divided into two types, namely short-term debt and long-term debt. Do not let you take short-term debt when what is needed is long-term debt. This can lead to finance because there is not enough money to meet needs. As a result, you are "forced" to make unnecessary decisions, such as selling business assets, to meet company needs.

4. Calculate Amount of Debt Owned

Borrowing debt must be paid off immediately so that your business does not have a financial burden. So, to get out of debt immediately, you must have a clear picture of the financial condition of your business. Collect all your bills, from bank loans, credit cards, investors, and so on. Add them all together to find out the total debt your business currently has. Also, write down the due date for paying these debts. After that, calculate the number of installments per month that you must pay to pay them off.

5. Create a Debt Repayment plan

To grow your business, some of you may have to owe more than one party to one. If you experience this too, start making plans to pay off the debt with the least amount. Of course, you also need to consider the agreed debt repayment maturity. Set personal targets to get debt repayment funds, well in advance of the due date. Motivate yourself that the sooner the debt is paid off, the sooner your business will be freed from financial burdens.

6. Pay attention to financial ratios

The increasing number of business needs that must be met makes you inevitably ask for debt again. This is okay to do, but make sure that your debt and asset ratio is not more than 50%: 30% of income. Don't let this number shift to a bigger number. Therefore, continue to do regular financial checks. Record every income and expense. Manage cash flow well. That way, when the financial records show any swelling in that ratio, you can immediately take action.
 
Calculating financial ratios and also recording transactions is easy to do. How to? You can use accounting software that is made for management.

2 Responses to "6 Effective Ways in Managing Debt in Business"

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  2. The dream of business ownership is alive and well these days, especially in Colorado. As of 2015, the state is home to nearly 600,000 small businesses which employ almost 1,000,000 people! Every day you hear about a new start up being launched or a company taking its headquarters to Colorado. Business is good! So for today's discussion, we thought it would be important to address the benefits of buying an established business over starting a business Debt Collection Software

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