Debt affects every business, from small companies to large corporations. If your finances are not monitored properly for a long period of time, your business can gradually transition from a profitable one, to one that struggles to pay the wages of its workforce year on year. Of course, you can plan for every eventuality which can lead to debts, whether it be a recession or a pandemic like the one we are currently in.

Here are five key ways in which you can avoid debt accumulation as your business continues to grow. Follow these guidelines and if any negative situations arise, you will be much better prepared to take less of a monetary blow to your company.

Know Your Costs

If your company is already in debt, it would be wise to know the interest rates on the debt. If they are high, it will be a priority to either pay it off as soon as possible or to renegotiate the terms. The latter is especially viable for debts which you have had for a very long time. As interest rates are very low in the current economic climate, it could be worth trying to ask for lower interest rates. Moreover, look over the costs of the business. You will most likely find something that you are paying too much for.

Increase Your Profit Margins

High revenues are attractive to report, both to you and your bank. But if profit margins are low, your business will be much more likely to enter into further debts if it falls into hard times. Make certain that you are buying assets at a competitive price. Similarly, don’t undersell your service/product to draw in more customers if you’re only just about breaking even. Different industry sectors will have varying profit margin standards. Make sure you know what profit margins are expected for similar products or services and adjust prices or costs accordingly.

Clean Up Your Inventory

As your business expands, it can become increasingly hard to keep track of all stock assets. If your inventory is not being properly managed, you may come to the realisation that some goods are no longer needed. For some industries, consider the fact that some stock may become unusable or be out-of-date. This useless inventory may be costing your business financially by taking up valuable storage space, either physically or digitally. Furthermore, you may be able to sell parts of your inventory, which may help clear any outstanding debts.

Have a Good Working Relationship With Your Customers

The main way that most companies earn money is by selling to the public. Therefore, it is of utmost importance that you receive all money that you are owed by your clients and/or customers as soon as possible. Building a friendly and fair relationship with your customers will increase their trust and loyalty towards your brand and consistently pay for the goods and services you provide. Make sure that you have set up good payment terms, and incur penalties for any breaches of these terms. For example, asking for payment in advance is a sure way to ensure that no one refuses to pay. Another way would be to introduce late fees for overdue payments.

Ask For Help

Finding out exactly why your business keeps running into debt can be a really difficult task, particularly as the company grows at a fast rate. You shouldn’t be afraid to ask for external help. Here at PPS Chartered Accountants, we can look closely at your finances and figure out what is causing your business to run into arrears. Furthermore, you may wish to hire the services of a credit counselor. They can help find improved interest terms if your business is already in debt for repaying creditors

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