Many business owners have been encouraged to get out of debt. The advice may not be entirely practicable, considering that all great entrepreneurs need loans (aka debts) to expand their businesses. But what makes debts problematic is if the company can't reasonably pay for them anymore without hurting its finances. That is when the debt becomes a burden rather than a source for greater profit.
Debt, as you already know, can be good or bad. As an entrepreneur, you should see the power of debt and how it can be used to build a business. You'll always need to make intelligent business decisions, and you need advice on how to raise capital for some projects.
As your business keeps growing, you keep needing more capital. But you're afraid of taking steps to put you into bad debt. As we noted at the beginning, not all debts are bad. Most debts are reasonable and will eventually pay for themselves. Most smart business people have been able to leverage loans to move the business forward.
Unfortunately, most of those in bad debt today never intended it to be so. Some never knew that their debts were going to be bad ones. And sometimes, these debts are enough to ruin the business. So, we'll be looking at how to avoid these kinds of debts and how best to deal with debts as an entrepreneur.
Types of Debts
An entrepreneur should not be afraid of debts, or loans, as the case may be. There are good debts and bad debts. The idea is to prevent falling into the trap of bad debts, which could damage the business.
Good debt is any money that is used to grow the business. No business doesn't rely on this kind of debt. They can come in many forms, including loans and mortgages. This money, when properly utilized, can always yield profit for the business.
Bad debts, meanwhile, are any money that cannot yield any productive purpose for the business. It is not good debt when money is used to fund unsustainable projects or luxuries that the business can't afford.
People are known to enter into bad debts when they make erroneous conclusions about their business. Sometimes, because the entrepreneur is in a hurry to earn from the business, undue pressure may be put on it, making it almost impossible for the business to survive. Sometimes, if the business seems to be thriving, the owner may deplete resources on things they are not ready for. In such situations, the business may not survive the onslaught of real challenges.
So, how do you deal with debts as an entrepreneur, especially if they are threatening your business? Here are a few tips
Cut your cost…
Start with measurable, achievable, realistic, and simple goals. While it's not wrong to aim high, starting small is better. If you go for massive projects as an entrepreneur, you may not be able to fund them.
Reduce expenses for now
Do not keep buying things if you have to deal with debts. When your business expands, you'll have all the money you need.
Cut down on employees.
This is the time to do as much as possible on your own. You may have to sit back and cut back on your employees. It's always a hard decision to make, but it is wise. It would save you a lot.
Don't quit your other job yet!
Maybe it's not yet time to quit that job. Your business may not be buoyant enough to pay you your salary yet. This would mean a lot of sacrifices, but it's worth it.
Have an emergency fund
If possible, set aside an emergency fund. Start growing it gradually from your profits. This would come in handy when you have emergency needs.
On a final note, instead of going the conventional route for loans, try family, friends, crowdfunding, and microloans. They may not provide huge cash, but they always have more lenient terms, are easier to pay back, and rarely lead to bad debts.
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