Debt of one sort or another is almost a fact of life for young businesses. Many businesses need some level of funding to get of the ground and that money has to come from somewhere. Even if the founders provide the initial funds themselves, then it is still, for all practical purposes, debt, since the business owes it to the founders.
As businesses grow, they may find themselves needing to “spend money to make money”. In other words, they need to invest in their ability to produce in order to be able to sell the results of that product for the profit they need to finance further investment. There are basically only two ways they can do this, one is to attract investment funds (for example venture capital) and the other is to borrow it from a lender (take on debt).
Both options have their advantages and disadvantages and depending on their needs and wants, businesses may find themselves using either or both. At the same time, too much debt can be bad for businesses in the same way that it can be bad for private individuals, so here are three tips to deal with it.
Increase your revenues
As a business owner, you should always be looking for ways to increase your revenues and you should be ready to increase your prices when it is viable for you to do so. Of course, in today’s world that may be easier said than done, which is why it is arguably even more important to look for ways to increase your revenue without raising headline prices (or getting sneaky with hidden charges). For example, if you are offering the sort of product which might be bought as a gift, offer a gift-wrapping service. If you want to smooth out revenues over the year, see if you could create a subscription service to keep money flowing at off-peak times. In fact, if your business has predictable down times then actively look to see how you can best manage them. Obviously these are the perfect times to catch up on everything which gets sidelined when you are busy, but if they go on beyond that then you really need to work on finding a way to keep making money during these periods for example could you host workshops or webinars?
Get to grips with billing
What this means in practice will depend on how you are doing your billing. If you are working on a retail-style basis, in which customers pay up-front, then it may amount to reviewing your payment contract to ensure you are getting the best deal and minimising any chargebacks. If you are working on an invoicing basis, where customers pay after they have received the goods or services, then you may benefit from taking a good, hard, look at this and seeing if it is working as efficiently as it could. In particular, you may benefit from offering customers a discount for prompt payment as this may well encourage finance departments to prioritise paying your bill over the many other things they have to do. As a minimum set a deadline by which the bill must be paid and be ready to chase it up if it remains outstanding. You may well find a polite phone call does the trick by reminding an overworked finance representative that you are still on their “to-do list” and you may find it a whole lot easier to make that call if there is a clear date by which a bill must be paid than if you send out an open-ended invoice.
Look for ways to reduce costs
Always question what you do and how you do it and actively look for ways to keep costs down. For example, instead of spending money on landline (or mobile) phone bills, you could get a Skype number and have customers call you on that and likewise use Skype to call out. This could offer substantial savings without any impact to your service.