While some debt is necessary to fund a business, if you’ve ever found yourself turning to a personal credit card to stay afloat… it’s time to stop for a moment and consider your options.
Here’s a sobering statistic: Last year, a survey of 1,200 Australian SMEs showed about two thirds of small business owners rely on credit card debt to maintain cash flow in their business. Just two years earlier, the Australian Bureau of Statistics found only a third of SMEs would use credit cards to maintain cash flow.
That means the number of businesses turning to credit cards to keep their businesses afloat has doubled in two years.
While there’s a certain convenience to using the credit card, the ensuing interest rates can put a business under even more financial pressure. Instead, here are a few tips to smooth out cash flow, and start to pay off business debt in your firm.
- Are your costs too high?
Reevaluate your regular expenses. Are you paying too much for supplies or materials? Research new suppliers and see if you can get similar materials elsewhere for less.
You could also reduce your office space and sell off equipment you don’t need or no longer use, or look into reducing your energy consumption.
This will result in savings you can put toward reducing your debt, or for maintaining cash flow in lieu of entering into even more debt.
- Can you buy now, pay later?
When looking at supplies and materials, have you considered services like Marketlend UnLock? Launched late last year, UnLock is similar to consumer ‘buy now, pay later’ models like Afterpay, except it is designed for small businesses.
In effect, Marketlend pays the supplier upfront for the materials, then gives your SME extended credit terms to pay the amount back – typically 90 days instead of the usual 30-day time frame.
This longer credit term allows businesses more time to repay, thereby smoothing out cash flow.
- Can you prioritise paying off your debt?
If you’re going to owe money, then you should know how much you owe and to whom. If you’re accumulating so much debt that it’s becoming challenging to keep track of what payments you must make every month, it’s time to take stock of your debt in order to prioritise your payments. Generally, when looking at loans it’s best to pay off those with the highest interest rate first.
Also consider consolidating loans if possible. Not only are consolidated loans easier to manage, as there are less people to pay, but you can typically find a lower interest rate – depending on the circumstances.
This is by no means an exhaustive list, butit’s the three best places to start. If the debt your business carries is slowing you down, the best thing to do is take steps to pay it down today. Even if those steps are small at first, they’ll compound into giant leaps over time.