Effective debt management is critical for the financial health of any business. Business owners must be aware of their debt to develop a plan to manage it and monitor their progress regularly. Doing so can cut costs, promote cash flow, and uphold a good credit score.
If you are a small business owner in the El Paso area and need assistance managing your debt, our accounting firm can help you. Contact Marcus, Fairall, Bristol & Co. online or call (915) 775-1040 to get started with one of our business CPAs.
Understand Your Business Debt
Here are some of the most common types of debt:
- Short-term debt: Typically used to cover short term operating expenses or finance inventory. It usually has a maturity of less than one year and includes trade credit, credit cards, and lines of credit.
- Long-term debt: Often used to finance capital investments such as equipment, real estate, or vehicles. It typically has a maturity of more than one year and may consist of loans or mortgages, or bonds.
- Secured debt: Backed by collateral, such as property or equipment. This type of debt is sometimes easier to access and has lower interest rates than unsecured debt. Though if the borrower defaults on the loan, the lender may seize the collateral.
- Unsecured debt: This type of debt is not backed by collateral and is generally more difficult to obtain than secured debt. It includes credit cards, personal loans, and business lines of credit. Unsecured debt typically has higher interest rates than secured debt.
Develop a Debt Management Plan
Once you understand your business debt, the next step is to develop a debt management plan with a trusted accounting firm. Here are some tips:
- Assess your present financial situation: Before you begin paying off your debts, you should know how much money you have coming in and going out each month. Create a budget that contains all of your income and expenses, including debt payments.
- Set debt reduction goals: Decide how much debt you want to pay off in a specified timeframe. Set realistic goals that you can accomplish based on your budget and income.
- Prioritize your debts: List all of your debts, including the interest rates and minimum payments. Prioritize your debts based on the interest rate, with the highest interest rate debt at the top of the list. If you have multiple debts with the same interest rate, consider paying off the debt with the smallest balance first.
- Negotiate with creditors: If you are finding it difficult to complete your payments, you may be able to mediate with your creditors for better terms. As a last resort, you may also consider seeking debt relief, such as debt consolidation or bankruptcy. A trusted accounting firm can help you with this.
Need further help developing the right debt management plan? Contact our accounting firm today to speak with one of our experienced business CPAs.
Improve Your Cash Flow
Here are some suggestions:
- Reduce expenses: Look for ways to scale down your business costs, such as negotiating with vendors, condensing staff, or cutting unnecessary expenses.
- Increase revenue: Find ways to boost your business revenue, such as offering added products or services, raising prices, or growing your customer base.
- Improve invoicing and collections: Make sure you are invoicing promptly and following up on overdue payments. This may quickly help you collect payments and improve your cash flow.
- Manage inventory: Avoid overstocking inventory, which ties up cash flow. Instead, monitor inventory levels and adjust your ordering accordingly.
- Regularly monitor cash flow: Review your cash flow regularly, such as weekly or monthly, to identify any issues and make adjustments to your debt management plan accordingly. Working with an accounting firm can make this process easier.
Who to Contact
If you need help discovering more resources on how to manage your business debt in El Paso, Marcus, Fairall, Bristol & Co. is here to help. Contact us online or call (915) 775-1040 to get started today.