Launching a small or medium sized business has a lot of obstacles, especially financial ones. A large percentage of all small businesses launched are unsuccessful in the first few years of starting out.
This is largely because of having less than adequate capital, excessive borrowing and poor credit facility arrangements.
You can do the following to avoid a situation where debt becomes a problem to your business:
- Try to raise starting capital on your own. Instead of borrowing your starting capital, hold back your launch plans until you have made enough savings to foot your business expenses.
- Do not open a credit account until you have built a good credit score for your business. Just like an individual, businesses also have a credit score. A score above 75 is considered good. Build a good score in the following ways:
- Keep your debts at a minimum
- Use any business credit wisely. Avoid using business credit for your personal use
- Make all your debt payments on time
- Keep up to date with the credit report for your business
- Only borrow when extremely necessary. Consider other options before you decide to borrow.
- Avoid too many expansion plans and risky projects within the first few years after launch. It’s better to minimize your risks until you are on a growth path.
Below are some good business practices that will give your business debt relief:
#1 Avoid extending credit to your customers
Starting off with bad debtors is bad for your business cash flow.
When you go into business, avoid dealing on credit terms with your customers until they have established a good credit record. Anticipate the possibility of vendors not paying what they owe.
#2 Don’t rely on debt
Being too eager to get your venture up and running will make you too reliant on debt. Working within a set of reasonable plans will keep you from committing more than your business is capable of paying back.
Running your business on little to no debt will ensure you are never caught up in a situation where you need debt settlement plans.
#3 Work within budgets
Even as your business continues to grow, keep spending at a minimum. Use a portion of business profits to keep running. Do not spend on big marketing campaigns or invest in equipment.
You need proper budgets to manage cost of operations. A good budget will also keep track of any investments you inject into your business.
#4 Build your credit score to get cheaper loans
After your business builds its credit score, you will get access to loans with better terms and lower interests. All your expenses should be paid through your business account. Consistent and on time payment of your business expenses shows the credit-worthiness of your business.
#5 Avoid tax debts
Another reason your business could go into debt is because of unpaid taxes. As a new business owner, it’s easy to make the mistake of not accounting for what you owe in form of taxes.
Have a good system in place for filing taxes. Get advice from a taxation lawyer on the kinds of taxes you should pay. A taxation lawyer will also advise on any tax relief that you could access.
Never ignore tax debts. It might even put you out of business.