By Henry Brown
Running a small business in today’s ultra-competitive global marketplace takes not only a lot of logistical effort, but some serious fortitude. To start your own business is to stake your flag in the earth and claim your stake in the fast paced and ever changing business landscape. The sad fact is that, however great your ideas are, however inventive and well marketed your product and however comprehensive your marketing strategy may be, economically speaking the deck is stacked against today’s entrepreneurs. To navigate the perilous path to small business success, entrepreneurs need to not only manage the operations of their businesses but build a healthy relationship with their business debts.
Debt is like fire. It can be used strategically to your advantage, but if it’s allowed to get out of control, it can consume everything it touches. We’re conditioned to avoid debt in our household finances, and with good reason. Escalating interest rates can make it seem like being on a leaking boat that just keeps on sinking no matter how much water you frantically bale out. It can make us act out of desperation and push us to take out loans that some consider predatory. Small business debt, while a different animal in many ways, can be used to the advantage of savvy entrepreneurs.
Remember, debt can be your friend!
Business debt is unavoidable. After all, the creation of any startup business requires some sort of overhead costs that (unless wholly self financed) incur some amount of debt. Debt can be a healthy reality of 21st century business. A common knee jerk reaction to a looming creditor can be to sell off facets of your business, which will impede future growth. It’s infinitely preferable to reach out to a responsible business lender. It can help to balance cash flow for businesses with uneven income (e.g. seasonal businesses). Debt of any sort needs to be cleverly leveraged. A debt represents an investment, and in some cases that investment may offer a significant return; in other cases it will not. It’s merely a case of balancing debt against the possibility of a meaningful return.
But debt can also seriously damage your business
Thus, while judiciously deployed lending can prove useful, indiscriminate borrowing can lead to a bottomless money pit that has seen many a great business sink into the mire of bankruptcy. Debt can be a necessary expense to bear in the name of giving your startup a much needed boost, but if not adequately managed, it will inevitably hobble your business. Therefore, entrepreneurs must tread a fine line between avoiding unnecessary debt while effectively managing the debts that can offer a potentially growth inducing return on investment.
Avoidance and management: A battle on two fronts
Let’s turn then to the avoidance of debt. The most obvious way of avoiding debt is by cutting unnecessary costs and freeing up cash as quickly as possible to ease liquidity. How you will do this will depend on the nature of your business. You may be able to move to a smaller premises or share your office space with another fledgling business, or trade in your ostentatious but unnecessary office for a few months of hot desking until balance is restored. If you’re waiting on payments from debtors that are getting you deeper and deeper into the hole, enlisting the aid of a debt collection agency may be an effective way of righting the ship. If you have capital tied up in stock, use this as an opportunity to upsell in ways that will build value into your transactions and thereby build more custom.
When it comes to your existing debts, it’s important to deal with creditors directly. As tempting as it may be to bury yourself in the operations aspect of your business, ignoring the debt will only exacerbate it and make its psychological impact on your more profound. Prioritize your debts and arrange manageable repayment schedules that sit well with your cash flow predictions for the coming year. Also, there may be times when obtaining a business loan may be necessary. Resources such as a Bridging loan company in England, for example, might be of help at such times.
It’s all about cash flow
Having or not having cash flow can often mean the difference between evolving or stagnating (and eventually collapsing). That’s why debt is such a necessary aspect of running a small business. Taking out a business loan or a bridging loan can enable you to invest in equipment that will increase productivity, employ a new member of staff or move to a better premises with more foot traffic.
If your debt isn’t helping you to grow your business in this way, don’t take it on!
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Henry Brown is an online marketing executive. When he isn’t talking shop he’s roaming the streets of London, uncovering the extra-ordinary in the ordinary.
