Brought to you by Business Exits:
Most businesses will incur debts at some time, making the task of running the organization all the more challenging. However, debts aren’t always a bad thing and can help your business build credit for future purchases. That being said, debt can quickly spiral out of control if you’re not managing it properly.
What’s the best way to avoid business debt? Avoid further debt.
Avoiding debt is easy when you follow the four clever tips introduced below. You’ll learn how to avoid debts altogether, so you won’t have to spend precious resources or time paying them down. Keep reading to learn more about streamlining your business’ finances and making your organization as debt-free as possible.
1. Don’t Borrow if You Don’t Need To
Many businesses assume that borrowing money via a business loan is the only way to secure funding for new products, sudden financial challenges, or to launch a startup.
While securing funding from a bank is a traditional method of acquiring the funding you need, there are many other ways to get what you need without the burden of repayments and interest rates.
This popular option has become widely used in recent years, spawning businesses and products of all shapes, sizes, and varieties. Crowdfunding sites like Kickstarter and Crowdfunding.com offer a unique opportunity to reach out to people who are passionate about your industry and looking to offer their financial backing to plans like yours.
Most crowdfunding doesn’t require anything in return, but some “investors” will expect early access, a free sample of the product when it’s complete, or something else in return for their backing.
An investor can provide you with the capital you need to get your business up and running but will expect ownership equity or something else in return. The angel investor is usually well-versed in your industry, and once you find one who is wholly interested in your ideas, you might have access to all of the funding you need!
Friends and Family
Some business owners don’t even tell friends and family about their business ideas. However, friends and family can offer a unique funding opportunity, so you shouldn’t exclude them altogether.
You might find a wealthy brother-in-law or uncle is willing to shell out cash to get your idea started. Just be wary of the strain that accepting money from a close friend or family member can potentially have on a relationship. Is it worth the risk?
2. Operate on a Budget
A business budget can help you avoid future debt by showing you exactly how much money you’re working with per month, what your expenses are, and what your net profits are after everything’s been accounted for.
When you know how much money you have to work with, you’ve got a much better picture of what you can afford in terms of future debt. You might not be bringing in enough money to justify borrowing money for an expansion, but without a detailed budget, you may not know this.
Sometimes, regardless of how much effort you put into creating the perfect budget, you might find that you’re just not made for running a business. Finances can be a challenge on any level, and if you’re trying to manage everything at once, it can quickly become overwhelming for even the most experienced of owners.
When that time comes, you may want to consider selling the business as an option to avoid additional debt. Business Exits can help you sell your business if you want to avoid further debt.
3. Diversify Your Revenue
Having all of your income tied up in one revenue stream can leave you stranded when sudden changes occur. If your revenue stream becomes interrupted for any reason, you could be forced to take on extra debt to make up the difference. With a diversified income stream, you’ll have extra streams to pull from should one dry up.
Some popular options for diversification are setting up a monetized YouTube channel or social media account, allowing advertising on your website, affiliate marketing, online courses, or subscription services.
Don’t make the mistake of thinking a single income stream will be available forever. Markets change, customers come and go, and you can’t leave your business to the mercy of an ever-changing world.
4. Reduce Your Expenses
Business debt is usually incurred due to an increase in expenses or sudden bulk expenses, such as lost inventory due to a fire or natural disaster. These expenses can add up quickly, and you may find that your business doesn’t have the necessary financial resources at its disposal to address them.
It’s important to reduce your expenses as much as possible without sacrificing quality and to carry insurance for those sudden large expenses that catch the business by surprise.