Avoiding business debt: 8 things all start-ups must consider

Starting up a business is never an easy task. Even if you have run businesses before, there are always events that take you by surprise. Fortunately, there is some general advice that we can all stick to which will minimize the possibility of failure. The one thing that every business will want to achieve is financial success. This means maximizing profit and minimizing loss. Where possible, debt should be avoided as a business strategy.

A Solid Business Plan

If we don’t know what we are trying to achieve, there is little possibility of achieving it. As we have already touched upon, any business aims to make a profit. However, we need to know how we intend to achieve it. The best starting point is to write a solid business plan that considers what your overheads are (the ongoing costs of running the business, rent, payroll, etc) and your cost of sales (materials, etc.), and what level of income you need to post a profit. Profile who your target customers will be and how you intend to attract them.

Take Advice

We all have gaps in our knowledge and experience. There is no such thing as a perfect business person. For this reason, it can be beneficial to take advice from someone who has more experience, or even just a different perspective. Some of us are good at customer relations, whereas others have a more technical mind, look at this example of how traders analyze and strategize. You can hire a professional business advisor. When doing this, it is important to find an advisor that has experience in your field and understands what is required for success.

Start-Up Funding

To avoid getting into unmanageable debt, we should be certain that we have an adequate source of start-up funding. You should consider if you have the necessary funds in your savings to fund the necessary start-up costs. This would have been in your business plan. Another alternative to borrowing is to see if you are eligible for any grants or business awards? Consider the current situation, where many businesses are eligible for a Covid-19 grant , so check out what you can get your hands on.

Get Your Tax Affairs in Order

You don’t need to borrow money to get in trouble with debt. If you do not pay invoices due, then you can end up in a debt spiral. One of the classic ways of this happening is to end up behind in your taxes. It’s essential to make sure you don’t habitually file your returns late, or you could end up owing huge amounts in fines and penalties. But if you do end up in bother with the taxman it’s essential to seek help as soon as possible. Some companies can investigate tax relief on your behalf, be sure to choose a reliable and reputable practitioner to avoid wasting money on scam artists.

Keep On Top of Book-Keeping

The best way to avoid tax issues is to not get into them in the first place. The way to do this is to stay on top of your books. This not only makes your tax return quicker and easier to complete, but it also gives you a real-time snapshot of the health of your business at any given moment. You can see how much cash you have, who owes you money, and who you need to pay. The information we are talking about is your balance sheet. It’s essential to know if you have a negative (or unbalanced) sheet, then it’s essential to act immediately. Not keeping your books up to date can lead to a delay in discovering such a situation, and essential time may be lost in rectifying the situation.

Review Performance Regularly

We’ve discussed the need to have a business plan, as a business never effectively works without one. We have also looked at why we must keep on top of book-keeping to have access to the current financial situation. All of this is for nothing if we don’t use these tools to conduct a regular review of our performance. If we look at our business plan, it will have financial projections, and this combined with the data from our accounts can tell us if we are on track. A good business plan will break down the financial projections into sales-type and by month or quarter. Many businesses are seasonal, and one month may not represent 1/12th of the year’s revenue, so it’s important to be precise. If we can see where we are going wrong, we can address that section of our business and see if it needs changing or abandoned.

Eliminate Waste

Waste is the killer of many a business. If we are losing money and don’t even realize it, we can be in terminal decline before we are even aware of an issue. There are various ways we can look at eliminating waste in our business. In some instances, it can be a waste. If you run a grocery store or restaurant, then stock rotation is important. Even in less organic lines of business, it can be a key issue. Consider the example of an electronics store, if you over-order on new TVs one year the nest year, you will be stuck with out-of-date models. You should also monitor staff performance to see that everyone is working efficiently. These days there is software that can monitor staff efficiency , check work completion rates, and compare them against each other.

When Debt is Appropriate

We have discussed, at length, the need to avoid debt as a business strategy, but there are some circumstances where it is essential. Often debt can be used to facilitate business expansion. It is important to analyze how the repayments will affect profitability over the term of the loan. Some debt is going to have a long-term benefit. Consider a mortgage on a commercial property, as once the loan is complete, you will have a healthy asset on your hands.

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