The SBA and President Obama are trying to free up more credit and make it available to small business owners. It is great that small businesses are getting attention, but I am going to put in a warning – Debtor Beware. Small businesses should focus on reducing debt if at all possible. You might think I am crazy coming out with this statement now, when things are starting to look better for the economy. But it is still critical for businesses to free up credit.
If you are maxing out your credit, then I bet you feel like you are just trying to keep up and not thinking about how you can expand and grow your business. Here is the kicker. If you can’t get your business (and spending) under control now, how bad do you think it will get when you are making even more? Now is the time to maximize your cash flow from revenue not new debt.
Getting out of debt isn’t an overnight process. You need to get systems and processes in order so that you can manage your cash flow to maximize it. I suggest businesses:
- Track cash flow monthly by using budgets or simple spreadsheets, but you need to know where your money is going
- Use extra cash to pay off your debts smallest to largest, so that you feel like you are gaining momentum (This is Dave Ramsey’s method and it really works!)
- Once you know where you are spending your money, start looking at ways to cut expenses
- Before you buy new equipment, prepare an analysis comparing the costs to own, rent, or to hold off on the purchase all together
- Write down your goals for the business for the next year, 2 years and 5 years (Once you know your goals, it will help making decisions from #4 easier to make)
Just remember, take baby steps and then you’ll start seeing progress. You don’t need to change your entire company overnight, but working towards having reserves and making your company more effective will give you a whole new peace of mind.
