How to Avoid Getting into Debt – Advice from a Debt Collection Expert
As a debt collector, I often come across the personal accounts of “high-turnover” businesses, who are nonetheless, drowning in debt and struggling to show a profit. The first question I usually ask my clients is why? Why did you wait so long to try and collect these debts and why didn’t you have systems in place to ensure it did not happen in the first place?
This blog is all about helping you avoid getting into debt in the first place and then what to do if and when it happens again.
In my 15 years of experience, a business’ financial stability can often significantly improve simply by making a few, relatively small changes in the way it operates.
Here are a few suggestions on how you can reduce expenses, avoid getting into debt and some suggestions on what to do if you do get into debt:
1. Manage your Cash Flow
Cash is King and it is the life blood of any business. It is affected by your accounts receivable, inventory, accounts payable, capital expenditures, and incurred debt. One of the biggest reasons why small businesses fail is that they are not paying enough attention to where their cash is either going or being held up. The result is that they fail to recognize and react to an impending cash crisis. You can improve cash flow by using software to help manage your business. Many accounting software packages offer a full range of features, such as financial reporting, payroll management, and billing and even debt collection.
2. Avoid Loans for your Business
Before applying for a loan, make sure you weigh all of your other options. Can you “bootstrap” your business? Pay for expenses out of your income? Grow as your income grows? If you have to borrow for your business, consider if you will be able to repay a loan. Before taking out a loan, make sure to look for other options first, such as crowdfunding or startup incubators.
3. Do a Budget and Stick to It
Sit down with your accountant or finance manager, set a monthly budget, and analyse where you can cut costs and increase efficiency. Even minor changes may add up to big savings in the long run. You could consider equipment leasing and financing instead of purchasing your equipment outright. You can alternatively buy second-hand or reconditioned equipment. Look for ways to improve invoicing and receivable income. Make sure your invoices are sent out on time and that late payments are accurately tracked. Perhaps, get your clients to pay upfront or pay installments, rather than one lump sum after delivery. You can require customers to make an initial deposit when an order is taken, and offer small discounts to those who pay their bills quickly.
4. Minimise Your Tax
You work hard for your money, so why give it away? It’s your job to find ways to minimise your tax exposure. Talk to your accountant and finance manager about the best way to minimise tax or to delay tax payments to the government. Make sure that you are maximizing your tax deductions. Every dollar you claim saves you 30% in tax.
5. Outsource to the Philippines
Some jobs can be done more effectively, efficiently, and cheaply by people outside of your business. Popular jobs to outsource include: managing and creating web content, designing and writing marketing material, and handling minor administrative tasks, such as, data entry, answering inbound and outbound phone calls, accounts payable, account receivable, and debt collection. Actually, pretty much anything. I love the Philippines and I love my team in Angeles City, Pampanga (Hi Geneva and team!). I can highly recommend Cloudstaff as an outsourcing solution for pretty much anything you need to get done.
6. Business travel – don’t bother
This used to be one of my biggest expenses apart from staffing, but now I rely on Skype and web conferencing where possible. If you have to travel, book it yourself and search online for deals on cheap flights and hotel rooms, and be prepared to be flexible.
7. Prioritize debt payments
Talk about the debt with the highest interest rate first. Most likely, that will mean concentrating your energies on paying off credit cards. However, if you’ve personally guaranteed any of your company’s debt – meaning, if a creditor or supplier can come after your personal assets, make sure paying off those debts become a high priority as well.
8. Speak with creditors
Tell your creditor or debt collector your financial situation and the hardship that your business is going through. Then, ask if they have a hardship program with better payment terms. If none, request for a payment plan or a reduced settlement amount.
9. Outsource your debts to a debt collector as soon as you can
Don’t try and do your account receivable yourself. You are an expert in your field and similarly, there are great debt collection agencies that collect debts and are good at it, so use them.
It’s also important to outsource your debts quickly. The quicker you outsource the higher the chance of recovery.
|About the Author
Adam Stewart is Debt Collection Expert and owner of Debt Recoveries Australia. We are experts at recovering your outstanding debt without the drama. For more information, email at us firstname.lastname@example.org or call 1300 799 511. Talk to us about your debt collection concerns via Skype at debtrecoveries.