Properly using and controlling debt is important to running a business in a successful manner. As per financial experts like Kavan Choksi, debts can benefit a business when it is managed well. On the other hand, if the debt is mismanaged or neglected, then it can also sink a business. Even when debt is extremely necessary, business owners should make sure to monitor all liabilities frequently.
Kavan Choksi sheds insight into how debts can be properly managed and paid off
The very first step to managing debt would be to properly analyze and review it. Business debts may include lease obligations or contracts, bank loans or overdrafts, business credit cards, taxes, as well as employee related liabilities. Once all the liabilities have been analyzed and reviewed, companies should start to prioritize them. They need to determine which liabilities have the most adverse consequences for late payment and try to pay them off as soon as possible.
After the business debt has been analyzed properly, creating a well-rounded debt payment strategy for it can be a great idea to stay on track. While such strategies will not fix all the problems of a business owner, it would help them to save money on interest. Two of the most popular ways for paying off debt fast include:
- The debt avalanche strategy: This strategy involves making payments for the debt that has minimum payments and high interest rates first.
- The debt snowball strategy: This strategy implies to managing the smallest debt first. Once these debts are paid off, one can continue to pay the same amount of money toward the bigger debts. Basically, the entrepreneur acts as though the smaller debt was not really paid off by allotting the same payment sum for other, bigger debts.
As per Kavan Choksi, both of the strategies underlined above have their own advantages and disadvantages. If an entrepreneur is not too sure about which debt payment method they must use, or how much money can their business afford to pay as extra debt payments, they can seek assistance from financial experts who can design a repayment strategy on their behalf.
Regular evaluation of the business budget is also vital to debt management. A well-rounded business budget would include all the fixed costs, variable expenses, and even income sources of a business. The ultimate goal of the budget is to establish a habit of allotting funds to pay creditors, as well as suppliers and employees.
Improving cash flow must be made a priority to pay off debts in time. To make sure that debts are repaid in time, businesses should try their best to increase their revenue. The more money a business owes, the more boost would its revenue need. Cash flow is among the most important indicators of business health, and also impacts its chances of enjoying long-term success. Implementing cash flow management strategies can go a long way in freeing up extra funds to make debt payments on time, and even making additional payments whenever possible.