Managing Your Debt As A Start-Up


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Being an entrepreneur, creating something from nothing, and watching it grow can be incredibly rewarding. But, opening a business costs money, and in some cases, the expenses add up to more than you may anticipate.

Coupled with that is the fact that new companies are rarely profitable at the beginning and can take a few months or a few years before they become profitable. Because of this, it’s easy for new business owners to rack up debt quickly, which can put them on the back foot.

If you’ve recently launched a business or have a business idea that you’re keen to start, taking control of your finances and managing your debt as early as possible is helpful. Try implementing the tips below to reduce the amount of debt you have.

Have a Budget

Having a budget is the simplest yet most effective way to manage your money. As a business owner, drawing up and reviewing your budget regularly helps you control your finances and manage your debt.

The budget should include start-up and ongoing costs and consist of fixed and variable expenses. Your fixed costs are the costs you must pay every month, like rent and insurance, while your variable costs change monthly. Variable costs include raw materials, labor, and ad-hoc expenses.

Budgeting for fixed costs is easier since you know what they will be every month, but variable costs require you to think ahead and plan. It’s important you do this so you’re not met with unexpected expenses you don’t have the money to pay. Ideally, consider your business plans for the next six to twelve months and estimate what they will cost.

For example, you may plan to launch a marketing campaign, hire a freelance photographer to take professional pictures of your product or buy additional raw materials for a busy season.

Spend time researching trends and events related to your industry, so you have the best possible idea of how much money to allocate each month.

Track Expenses

There are so many costs that go into running a business that if you don’t keep track of them, it will be easy to overspend without realizing it. An efficient way to keep a record of your expenses is to create an excel spreadsheet and input every cost, even the small ones.

It’s easiest to record your expenses daily, so you don’t forget what you’ve spent money on and how much you’ve spent. If you use your debit or credit card, you can use the statements, but if you’re paying in cash, it’s best to keep your receipts. You should keep your receipts anyway, as you will need them for tax purposes.

Look for Ways to Reduce Expenses

An effective way to manage debt is to reduce expenses. Even if you have poor credit, it’s easy to get a loan with little to no effort, as there are several online or over the phone loans that you can take without leaving your home or office. Due to this, many business owners may be tempted to borrow money to pay bills thinking that when the business is more profitable, they will be able to pay it off.

A better approach is to focus on reducing your expenses, and you can do this by reviewing your budget and the excel sheet you use to track your expenses. Look at how much you spend and compare it to your budget, and then look for ways to cut down your expenses.

This can include variable costs, like sourcing cheaper raw materials or asking for a discount if you buy in bulk, and fixed expenses, like moving into a smaller office space or working from home.

When you reduce costs and free up money, you can use it to pay off debt.

Have a Debt Management Strategy

If you’ve taken a few loans to fund your business and manage operating expenses, it may be overwhelming to pay all of them. You may have loans from a bank or online lenders and use your credit card.

When you have a lot of debt, it’s best to adopt a strategic approach and work towards paying the loan with the highest interest rate off first.

Another option is to consolidate your debt. This involves taking another large loan. The loan amount should total all the money you owe with interest and fees. You then use this loan to settle all your debt. This way, you will have one large loan to pay instead of several small ones.

The decision to consolidate your debt gives you the responsibility to compare quotes and find a loan offer with reasonable terms so you can manage to pay it off. If the business is going through a dip in sales and you can’t keep up with your loan payments, reach out to the bank or lender and let them know about your situation.

The Bank may be open to renegotiating the terms and are more likely to work with you than if you aren’t transparent and simply miss your payments.

Final Remarks

Owning a start-up typically requires a lot of capital, and if you’re not careful, it’s easy to end up in a lot of debt. To manage your debt, it’s essential that you have a budget, track your expenses, cut costs and work towards paying off your loans.