Debt is a dirty word to a lot of people. In our personal lives, when we think of debt, we think of how to get rid of it as soon as possible. However, in business, you’re playing a financial long game. Sometimes, taking on a little debt is necessary for the long-term financial health of the company. So, how do you live with debt without taking over your life?
Always have a reason to borrow
Businesses should not be regularly using credit cards for small expenses. It’s an easy way to get caught in a debt trap if your finances take a sudden nose-dive. Rather, all use of credit and loans should be specifically aimed. Reasons to take out a loan include expanding with new real estate, purchasing equipment and inventory, and even to get through periods of poor cash flow. Don’t borrow unless you know exactly why you’re borrowing.
Budget for it
When you borrow, make sure you take very careful note of it. Immediately start budgeting for the payments you’re going to make back, and know how your debts balance with current income and cash flow projections. They should always be on your mind, in part. Otherwise, it’s easier than you think to lose track of them, rack up interest, and get in a dangerous situation.
Keep your credit healthy
The better your credit, the better the terms you can expect from loans. However, many people go into business with a line of credit that’s already unhealthy. What are they to do to get back on top of the situation? For one, small business loans for bad credit won’t only help you get the funding you need when you need it. Successfully sticking to the terms of the agreement can help you start building a credit history if you don’t have one, or can improve your score. That will make more favorable loans available to you in future.
It sounds like a given, but the truth is that unless you start learning the habits of responsible credit use, it’s easy to very irresponsible instead. For instance, use accounting software instead of keeping sums by hand so that the figures are always easy to track. Enforce spending limits on any cards you use. Document a spending policy for employees to follow to avoid charges going where they shouldn’t. Most importantly, keep it very strictly business.
Strategize for reductions at all times
Part of living with debt is being aware you have to constantly make moves to reduce it, especially if you use it often. Beyond budgeting to a repayment plan, this might also mean being aware of tools like debt consolidation to help you get more favorable repayment strategies.
Smart borrowing, realistic expectations, and debt-reduction strategies are going to help you be a lot more financially flexible. You’ll be able to invest when otherwise you couldn’t and survive tough times that would otherwise sink you. There are plenty of perks to sharing a business with debt from time to time.