For many entrepreneurs, the words “business” and “debt” go hand in hand. In the eyes of customers and investors, being debt-free is considered the most important factor in building a business’s reputation and image.
In today's business, it's easy for debt to pile up quickly enough to put a business out of business before a solution can be found.
The problem is that debt seems to be an inevitable part of everyday business, very few businesses can avoid incurring debt. And over time, debt becomes an “unpleasant thorn” that needs to be removed as it increases the level of business risk.
However, difficult does not mean impossible. There are certainly causes of business debt, and once you know them, you can avoid them. Take the time to review your business’s cash flow and you may discover some out-of-the-ordinary expenses that you need to eliminate to improve your financial health.
Here are eight causes of debt and when businesses avoid them, the results are obvious.
1. Not sticking to the essentials
A good starting point is the “all-inclusive” and “catch-all” principle, which tells business owners to be smart by spending money only on what is absolutely necessary to run their business.
The fewer and less costly options for achieving key objectives, the better. And businesses only increase costs if revenues allow it.
After going through the infancy of the startup phase and finding that these rules are too tight and somewhat limiting to business growth, the business can slowly loosen the rope a bit and enjoy the freedom of a larger cash reserve.
2. Doing too much too soon
If a business has just started but is trying to undertake multiple projects at once, limited initial capital will significantly limit the time and money the business can spend on each specific business project.
These efforts need careful attention and need to be nurtured slowly and thoughtfully if your business is to succeed. When businesses try to take on too many commitments at once, they end up with projects that fail to succeed, and costs and debt pile up.
3. Not designed for scalability
Initial success is important, but it is no good if the business is gradually eroded by lack of initial planning and poor preparation.
If a company's business design cannot be expanded as it matures, the company may be forced to incur additional costs in its efforts to redesign its business.
4. Failure to delegate
Business owners need to remember that they are initiative-makers. Don't spend too much time on tasks that could be done just as well by someone else for less money.
While business owners may try to micromanage and keep an eye on every aspect of their business, they may not only drive themselves crazy with work stress but also drag their business into trouble by failing to properly manage its overall financial health.
5. Buy in bulk
When you are not a large enterprise, choosing to buy a large quantity of goods to serve a long-term development plan or to store for a long time is not appropriate at all.
Your business must carefully calculate the costs incurred at each stage and will need a certain amount of cash on hand at all times. Plan your purchases to what you really need for a given period and your business will have a better chance of accurately forecasting unexpected cost storms.
6. Late payment of bills
Late payment of bills will lead to many disadvantages, not only causing debt but also the debt will become larger and larger according to the late payment interest rate.
Whenever possible, pay your bills when they are due. Credit cards should be used to the fullest as many banks allow a certain period of time without paying interest on payments.
7. Throw away the bills
It can be difficult for many business owners to see their cash flow and separate business expenses from personal expenses without keeping a complete record of all receipts.
This can end up with higher expenses and less tax deductibles. Keep a good record of all receipts and your business will have a much easier time calculating taxes and expenses.
8. Failure to collect receivables
Make sure your business is a “good man” in business, but it is also essential to ensure that the business gets paid its receivables on time.
With so many tools available today for notifying customers of when payments are due, there is no excuse for businesses to let receivables pile up without recourse.
Businesses can equip themselves with a variety of accounting software that automatically sends invoices and reminders for payments of receivables due, and even facilitate customers to make payments over the internet directly to the business's bank account.
According to bwportal
