Keeping Your Business Out of Debt

As I scan the media these days, I often come across the personal accounts of people who were drowning in debt yet were able to pull themselves out and make their way towards financial stability. Since these people tend to be representative of the “average Joe,” the display of resilience and discipline is particularly inspiring.

But what about all the small businesses out there who are also struggling with debt? With consumer sales slumping across the board (yep, it’s official… we’re in a recession!), many small businesses are feeling the pinch.

And words such as, “debt consolidation,” “business restructuring,” and even “bankruptcy” are being thrown around like used tissues, without enough emphasis on what they mean for you and your business and without a clear way of evaluating your options.

In my experience, a small business’ financial stability can often significantly improve simply by making a few, relatively small changes in the way it operates. These changes broadly fall into one of three areas: cash flow, operating budget, and what I will call “outreach.”

Here are a few suggestions on how you can reduce expenses, increase efficiency, and cut back your debt.

Focus # 1: Your cash flow

Your cash flow is the flow of working capital that is taken in and given out of your business. It is effected 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 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. Here are some tips to improve cash flow:

  • Use software to help manage your business. Many accounting software packages offer a full range of features, such as financial reporting, payroll management, and billing. Popular options include: Quickbooks or Peachtree. You can also check out the free open source programs, such as GnuCash and TurboCash. Facility management software or scheduling software such as PeopleCube can also help improve budgets, increase efficiency and reduce costs.

  • Create a monthly cash flow schedule. Many of the factors effecting cash flow, such as outstanding accounts receivable or inventory, do not show up on an income statement. A cash flow schedule is specifically designed to give you a clear picture of each component of your business and how it effects your cash flow so that you can project a future cash shortage.

  • Look for ways to improve billing and receivable income. Make sure your bills are sent out on time and that late payments are accurately tracked. You can require that customers make an initial deposit when an order is taken, and offer small discounts to those who pay their bills quickly. You can also direct hard to collect receivables to a factoring company.

  • Know where to get temporary financing. Set up a business line of credit or apply for a business cash advance so you always have access to capital when you need it.

  • Track your flow of inventory. A lot of capital can be tied up in overstocked or unused products and supplies.

  • Stay on top of your bills. You can negotiate with vendors for payment in 30 days or more and pay towards the end of the term.

Focus #2: Your operating budget

Take a look at your budget to see where you can cut costs and increase efficiency. Even minor changes may add up to big savings in the long run. Here are a few suggestions:

  • Equipment purchases: Consider equipment leasing and financing instead of purchasing your equipment outright. You can alternatively buy second-hand or reconditioned equipment.

  • Taxes: Make sure that you are maximizing your tax deductions. For more information, read this article, and here’s another.

  • Outsourcing: 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 and answering phone calls.

  • Bringing work in-house: On the other hand, modern technology is making it possible for small businesses to tackle jobs that were usually either handled by outsiders or by people specially trained for the task. For examples of this, check out’s Server How-To Center or HP’s line of low budget equipment and tools that allows small businesses to create professional-looking printed material.

  • Business travel: Rely on telecommuting and webconferencing where possible. Search online for deals on cheap flights and hotel rooms, and be prepared where you can to be flexible. Alternatively, you can hire a travel consultant to do the work for you.

  • Conserving resources: Bring in energy-efficient products, such as CFL light bulbs and energy star equipment. Incorporate resource-saving practices such as, shutting down computers when not in use, printing double-sided pages, using time switches for lights and air conditioning units, using GPS when traveling on the road, and not letting vehicles run idle.

Focus #3: Outreach

This area is a combination of marketing, with a focus on customer satisfaction and customer feedback. One thing that many small businesses have over their bigger competitors is the personal relationship they can maintain with their customers. Do not overlook this vital asset! Not only will it help you to increase sales, but it can help you to operate more productively.

  • Focus on quality. The integrity of your products and services will form a lasting impression on your customers and can go a long way towards building customer loyalty.

  • Ask customers for suggestions. Actively ask your customers for suggestions or improvements via surveys or personal conversations and then follow through on anything that can be implemented.

  • Bring in CRM software. Several open source Customer Relationship Management (CRM) software options exist for small businesses, such as Compiere and SugarCRM. These applications allow your business to effectively manage and access your customer information and to use it to develop your customer relationships.

Image credit: faungg

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