6 July 2022
Happy Wednesday Luv!
There are people who may have run into bad debt. That’s the reason they think that debt in itself is a bad thing. It may even make them want to avoid all forms of debt altogether.
Debt itself is not a bad thing!
In fact, debt is necessary when you run a small business. There are good and bad debts. Also, debt is something most, if not all entrepreneurs would have to deal with at some point in the business.
There will be times when you need to purchase goods on credit, especially if it is for a good cause, like growing your business. An example would be when business is growing fast you might need new inventory faster than you can gain cash for from your operations.
Collections might be a little bit slow at the time being, sales are growing and so is the business overall. You need to tap into that line of credit. However, you should also have a debt reduction plan along with that.
You don’t want to get into too much debt.
Nevertheless, remember that your income will determine how much money you should borrow or take out on a loan.
You will need to have an effective debt management plan. It should be one of your most useful debt management tools. Keep in mind that the financial situation of your business is unique so not all debt management approaches will work for you.
All your creditors will not be on board with you on your efforts to reduce your debt. Nevertheless, you may find that a good number of them will!
Consider these as part of your debt management plan:
- Make a Debt Inventory
- Make a list of all the money you owe and to whom you owe it (be thorough and sincere to yourself when doing this)
- Write down how much interest each debt incurs, how much you owe that bank/person/etc. and the monthly payments that you have agreed upon
- You should keep record of every bit of credit you have tapped into
- Your credit card debt should also be included in the inventory
- Any form of debt that you have used to sustain your business should be placed on that list
– Now, use a spreadsheet and record all of that
– Arrange your debts by interest rate as well as by the number of monthly payments
– You can now prioritize which debt you should pay first
This inventory should be part of your debt management tools. It’s up to you if you want to deal with the smallest debt first to the biggest debt.
But always keep your finances up to date!
Talk to you soon,