“Rather go to bed supperless than rise in debt” – Benjamin Franklin.
I must admit that Ben Franklin was right on point here. I don’t see why small businesses like mine crush themselves under debt. I agree that a loan from a bank or a creditor can help them expand rapidly.
But, what about the recurring interest payments on those debts?
Interest payments on loans can significantly impact a business’s profitability. And, not to forget that some lenders may ask for profit sharing from your business income. So, how about we sideline the idea of loans and debt for some time, and analyze a few ways to raise money for our business?
Below, I’ll be sharing a few questions that every small business owner should ask themselves to keep their business debt-free. I believe these questions would offer much-needed clarity and hopefully, save your business from debt.
Are You Following the Basic Financial Rules?
“Money comes in and money goes out”, is the fundamental financial rule of any business.
However, small business owners often forget that it is not the sole principle to keep their financials in check. Managing expenses is quite difficult, especially when you have to get things done with limited resources.
Here, I would advise you to create a detailed financial plan. You should take into account your income, expenses, overhead costs, and other financial details to understand your business profitability.
Once your basic financials are sorted, you’ll be in a better position to make sound decisions. Needless to say, it will also stop you from unnecessary spending and save your business from debt, for sure.
Does Your Business Have Avoidable Costs?
Most businesses have avoidable costs, but they fail to identify them. Especially costs like utilities, rent, etc., which can be lowered down significantly.
“A penny saved is a penny earned”, validating George Herbert’s wise words, I would suggest you start looking for the avoidable costs. As you cut down costs, it will automatically translate to more revenue and better profit margins.
Having said that, I believe it can be tricky to identify between avoidable and unavoidable costs. And, it may be subjective to the business’s nature. Anyway, let me share one instance of how I eliminated some unnecessary costs.
I required an affordable and fast internet connection to stay in touch with my online customers on social media pages. I also needed a reliable phone service to communicate with my vendors and suppliers.
While you may think that these costs are unavoidable, I found a way to reduce their overall price with Spectrum Deals. I bundled both services and it actually cost me less than paying for these utilities separately.
So, find avoidable costs, cut them down, and increase your profit margins to avoid debt.
Have You Established a Solid Emergency Fund?
An emergency fund plays a key role in saving you from going to a bank or a creditor for a loan. It’s a fact that losses are part and parcel of every business. However, when you’ve got emergency funds covering your 3-6 months of expenses, that is when you don’t have to rely on debt.
I’ve seen small business owners taking loans just to keep their ventures afloat. In some cases, a loan may help their business survive. But if they had an emergency fund in place, they would never need to go into debt and pay hard-earned profits in monthly interest payments.
Also, if you haven’t established an emergency fund, I’d advise you to save small amounts from your profits every month. Just ensure that your emergency fund can cover your business expenses for 3-6 months so you never have to go into debt.
Before I wrap up, I would also suggest keeping tabs on your marketing strategies. Most small businesses use social media platforms to reach out to local customers. While it’s a great strategy, social media marketing can be expensive, especially when you target customers on several platforms.
So, I would suggest you find a few of the best social platforms for your business and spend intelligently. And, in the end, I hope these questions will help your business stay debt-free so you never have to pay even a hard-earned dime in interest payments.
