Every company is a trade of risks and opportunities that can allow them to flourish or let them fail. Unfortunately, some high-risk companies can end up contacted with a debt collection merchant account before they reach their full potential.
Whether you’re in your second year of business or your thirtieth: the debt shouldn’t define it. These are some of the best ways to avoid losing your dream business to debt and what to do if you find yourself in the red.
1. Create a Manageable Budget
Your business’s budget is king, but that doesn’t mean it can’t be reassessed or changed. When you find your merchant accounts in unwieldy amounts of debt, it’s time to stop and go over the numbers again.
To make the best budget possible, you need to start by calculating your revenue and get a clear view of where that’s coming from. Is this a reliable source of funding, or is it more scattered? From here, subtract your fixed costs, and remember to set up a contingency fund for future emergencies.
From here, you have to start the real work. Create a statement detailing your profits and losses, and outline what your budget should be like moving forward. Don’t be too strict, or you’ll find your business unable to keep moving. Don’t be too lax, or you could end up further in debt.
This budget should be reassessed every quarter to ensure it’s still working with you and to accommodate new expenses or revenue.
2. Work to Boost Your Revenue
Boosting your revenue is probably already at the top of your mind, but how people do this is often misguided. Running flash sales where you cut your profits by huge margins or reduce the quality of your products can be a mistake.
Instead, work to create more large accounts. If you sell shirts, prints, or other items that can be mass-produced, try to get more business-to-business connections. These accounts are larger, will give you less work requiring fewer designs, and can create a long-term business relationship that will offer future income.
3. Keep Your Debt At The Forefront of Decisions
When your business is moving towards paying off debt, it needs to be the first thing on your mind during operational hours. Although you shouldn’t obsess, for your mental health’s sake, you should take it seriously.
Every time you make a decision for your company, consider if it’s moving you towards or away from paying off your debt. Is it going to help your company thrive, or is it going to hurt it? There is some gray space in this, of course, but take your debt seriously.
4. Keep Morale Up With Employees
The last thing you should do is damage the morale of your employees. A study from the University of Warwick went over four different experiments with hundreds of participants and found that productivity rose by over a third when employees were happy and taken care of at their jobs.
You don’t have to hold their hands and guide them through every day of work, but don’t include reasonable annual bonuses or their wages in any part of the budget cut. If you can, make it clear that your company appreciates their work and help keep their morale up.
Don’t mention debt or the company’s current financial standing around employees since this can make them feel like the company’s future is uncertain. Employees who don’t feel like their job has any promise will quit or seek employment elsewhere before risking being let go without warning. Keep confidence in your company strong.
5. Avoid Major Operation Changes
One of the most costly things you can do is overhaul all operations at once. Not only does this often cost money through machinery or software changes, but it also takes time to train employees, which will cost more money than it’s worth.
You should make changes to save money, but weigh the pros and cons of it ahead of time.
If you need to introduce new machinery, software, or working styles to your employees, take the time to figure out how long it will take to train your employees, how long it’ll take them to get used to the software and be able to use it with ease, and then weigh that against keeping the same operations you have now.
If you’re unable to catch up and overcome the profits you’d have otherwise, it’s not worth making this change right now. If you’re looking at an issue and you’re unsure whether this change will cost you more money or not, consider speaking with a professional who can weigh the pros and cons with you. Remember that this will often also cost money.
6. Consolidate Your Debt
Having more than one debt collection merchant account may seem nice when it starts since you have multiple revenues of funds to boost your company, but when the payments become due, it can get stressful.
Consolidating your debt allows you to take out one loan that will pay off and combine your many debts into one. This allows you to make a single payment instead of multiple, which gives you the freedom to work towards paying that off every month instead of dodging various charges.
When you consolidate debt, you can often find better rates and possibly lower monthly payments, which also help. Don’t be afraid to seek this help, especially if you’re struggling and falling behind.
7. Organize All Paperwork and Receipts
One of the largest reasons companies fall behind is poor organization and management. This is a curse that falls on countless small businesses and hinders them from getting back in the black.
If you only have paper receipts and documents, consider scanning them to offer digital protection in case any paperwork goes missing or gets damaged. Going digital also makes it easier to categorize and search, enabling you to change your sorting method from date to type to alphabetical by company name, all within seconds.
Create a calendar, both digitally and physically, that shows when your payments are due and how much they are. If you want to take this further, create alerts to notify you on your phone or email whenever a payment is coming up.
Keeping organized and ensuring your payment and debt information is front and center will give you the opportunity to always know where your debt is standing.
8. Don’t Fall Behind on Taxes or Other Payments
It’s easy to think that being late on other payments, or even taxes, is forgivable if you’re doing it to keep up with debt, but it’s the last thing you should do. Even if your company is small, pulling in just over $2,000 a year while it’s starting out, the IRS doesn’t miss a beat. All income over $600 a year is being reported to it by companies ranging from eBay to Etsy, PayPal, and so many more.
Stay on top of your taxes, light bills, and others. Although this can feel easier to say than do, it’s better to be in trouble with a debtor than with the government.
9. Don’t Avoid Necessary Maintenance
One of the first things many companies in debt will try to do to reach payments is to cut corners here or there to save themselves money. This might mean avoiding maintenance on a delivery truck or avoiding getting work done on a breaking machine to try to make paying the debt a little easier.
Avoiding maintenance is a terrible idea. Not only could you risk all of your operations grinding to a halt when something fully breaks, but you could also get yourself in legal and financial hot water if it puts employees at risk. Beyond this, maintenance is always far more affordable than having to replace something that’s been poorly maintained.
10. Seek Help From Professionals
Sometimes the best thing you can do is admit you’re in too deep and you need help. Financial professionals can do anything from helping you figure out where your business might be hemorrhaging business to helping you figure out the best debt consolidation resource– or can even give you a chance to connect with a lender who can help rebuild your company.
Even if your company is considered high risk, and you’ve been turned down by numerous financial institutions if you can prove that you and your company have a lot of promise: you could still get ahead.
When seeking help, make sure to ask for rates and check previous reviews to ensure they’re someone who can help you. Although the service may be desperately needed, the last thing you need is to be taken advantage of. Work with someone you can trust, and you’ll be amazed at how much better your company will do on the other side.
Don’t Be Afraid to Ask for Help
Whether this is your first company, or your eighth, if you believe in it and have a good business plan: you shouldn’t fear it closing. Keep these tips in mind, and be aware of the help available if you fall into debt.