Below, we will show you a list of 7 tips on how to get around this situation, clear your name, balance your business finances and finally be able to rest easy thinking about how to prosper your company instead of how to pay the monthly bills. At the end, there is even an unmissable bonus!
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1. Know the real value of your debts
There’s no way around it; you really need to write everything down. The first step toward getting out of debt is to understand all of it, write down every single debt, and educate yourself regarding the sum owed for every one of them, interest rate, whether it allows for repayment, etc.
Think of this very first step as a big clean-up, like tidying up the closet. First of all, you have to clean out this closet and then organize the clothes in order to put them back into their proper place, right?
List all your debt in priority order such as highest interest rate, most late, etc., to best decide which to pay first since you will be paying off your debts step by step.
Then, add up all your debts to understand the total amount of your debt — but don’t despair if you come across a high amount.
After all, most of this amount is interest, which can be renegotiated and even cut by bringing forward the installments or paying off the loan or balance due in full.
You can know how much you owe and how much of your monthly income, or your company’s income, you can put into paying off debts without disturbing your financial planning.
Then write down all your income and expenses; know where your money goes every month. Do the same with your company’s accounts.
2. Save money by cutting unnecessary expenses and costs
After you know what your monthly expenses include, you would be able to differentiate those that must stay at all costs and those that can easily be cut back. In doing so, you will eliminate some bills, for example: do you really need to subscribe to more than one streaming service for movies and series?
You can also reduce costs even for essential bills. Think about your electricity bill; avoiding waste will reduce your monthly costs. And when it comes to food: cooking and eating at home, while ordering fewer deliveries or going out to restaurants less, is also enough to significantly reduce these costs.
In the company, the same logic should be followed: saving natural resources such as water, electricity and gas will be good for the environment and also for your pocket.
Want an example? How about avoiding printing things on paper as much as possible, thus reducing costs with electricity, printer ink, machine maintenance, sulfite paper, recycling and other associated expenses, in addition to prioritizing written communication on free channels instead of making paid calls?
Also, it can be researched and negotiated to lower the price of inputs, and so, reduce the expenses for production. Change the location of the company in search of more affordable rent, etc.
3. Separate your personal finance
This is one of the main problems for small entrepreneurs, but even medium-sized companies can end up facing this difficulty — especially in cases of family management.
However, separating personal and professional finances is the first step to getting your accounts in order, and is an extremely necessary measure.
Check out the step-by-step guide to separating your personal finances from your company’s finances:
- Set a spending limit and determine what your monthly withdrawal will be. In other words, set a salary and be strict about not taking more than this amount each month. This remuneration for the entrepreneur (and his partners) is also known as pro-labore . This way, you will not use company resources to pay personal expenses.
- Open a business account for your company and use your personal bank account only for personal expenses. This way, you will literally be separating your finances and will be able to see much more clearly the expenses of each one when you follow your statement.
- Create a good financial plan for both your home and your business, considering all expenses and income.
4. Learn to negotiate
Renegotiating debts is a very important step towards being able to pay off your installments and reduce abusive interest rates — which are often responsible for making the amount owed much higher, costing up to three times what it was initially.
At this point, look for your creditor, explain your situation and show that you are willing to pay off the debt and honor your commitment, but ask for help so that the installments fit into your budget.
After all, after having completed the three steps above, you will already know the real value of all your debts and will have clarity about your financial planning to understand whether or not the proposal fits your budget in the medium and long term, without compromising your financial health.
Believe me: reaching an agreement and receiving payment is more advantageous for the company or bank you owe money to, so the negotiation will benefit both parties. However, in order to negotiate and argue in a well-founded manner, you have to arrive prepared, with your house in order, as we taught you previously.
You can ask for a reduction in the interest rate, amortization of installments, a longer payment term or even a discount for paying everything at once.
5. Ask for professional help
An accountant can become your greatest ally when it comes to getting out of debt and creating a financial plan that you can follow while staying within your budget.
This applies to both your personal finances and your company’s accounts, as the accountant also knows better than anyone how to deal with taxes, which can be quite complex in a country.
With the help of this professional, it is even possible to fit the business into the most economical financial regime, paying less taxes and reducing yet another expense (in addition to avoiding forgetting to pay a tax and spending on interest and fines).
6. Earn extra income
Your company can earn more by increasing sales of products and services and reducing expenses. In this sense, it is worth considering actions to increase the business’s average ticket, that is, increase the amount spent by the customer for each purchase or service contract.
This can be done by increasing the amount charged, which should always be in line with inflation and the market average (evaluate whether you are charging less than you should), or by running promotions such as free shipping for purchases over a certain amount, gifts, loyalty programs, progressive discounts, etc. This way, the more the customer buys, the more benefits they will have, creating a win-win situation.
On a personal level, extra income can come from selling products, food, clothes in good condition that you no longer use, some additional work in your spare time, consultancies, private lessons, mentoring, etc.
7. Keep your cash flow up to date
Cash flow is one of the main tools for good business management. After all, with it, you have clarity on everything that comes in and goes out of the business’s finances, having more precise control over your income and expenses.
After the lack of financial planning, poor cash flow control is the main reason for companies’ financial mismanagement.
It needs to be always updated, being fed daily, so that the true financial situation of the business can be understood and, therefore, informed and accurate decisions can be made.
With cash flow, it is possible to see, for example, what amount could be used each month to pay debt installments without harming the company’s budget.