Got Debt? Get the Truth About Healthy Business Finances
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Your business finances are the foundation of your business. You want to grow your business. You also want to end the cycles of feast and famine that come along. Great! But how do you do that? How do you lay a solid foundation, keep the cash flow going, and keep your business finances healthy?
Business owners often view loans and lines of credit as the solution to the financial challenges they face. Using debt as a financial strategy for business growth or managing lean sales periods is based on some common, long-held beliefs, but following that strategy can cause a lot of struggle for small business owners and entrepreneurs.
If debt is causing stress and financial worry for you as the business owner, it’s time to challenge long-held beliefs about using debt as part of a strategy for managing your business finances.
Long-Held Beliefs About Business Finances and Debt
#1 – A line of credit is needed to cover cash-flow fluctuations.
The truth: This is a common belief and temptation for many business owners. A line of credit can be a safety net, but it should be used strategically and sparingly.
The problem with using a line of credit is that it can contribute to cash flow issues. You have to pay that money back, so those payments have to come out of revenue when things loosen up… often well beyond when you could have gotten back to “normal” if you had reserves on hand to manage the situation and carry you through.
By changing the way you manage your business finances and having a plan, the money to cover cash-flow fluctuations is in your business account. It’s much better to weather a slow cycle without adding the stress of debt.
#2 – Some large purchases require going into debt.
The truth: If you are running your business out of a checkbook and making decisions based on bank-balance accounting, this may actually be true for you. But there is a way to have money set aside for large purchases or growth expenses – or even unexpected expenses.
When it comes to stability in your business finances and business growth, keeping your cash flow going is the best way to go. Debt bogs the cash flow down
When you have a system for allocating funds from your incoming revenue stream, you will have funds available – without going into debt. You may not have large sums on hand for every purchase you want to make exactly when you want to make it, but you’ll have a system in place to increase allocations as needed to pay cash for even large purchases.
Having money set aside for future investments and needs also causes you to think more strategically about each purchase you consider making. Using actual cash tends to do that.
Do you really need that (fill in the blank) piece of equipment right now, or could it wait? Is it an investment in your business, or just another expense? Is there a cheaper alternative to buying? If you decide you do need it, how much more would you need to set aside each month to be able to make the purchase soon? You can have the cash for large purchases. You just need a simple system and a plan for managing your business finances.
#3 – You can’t build or expand a business without acquiring debt.
The truth: The answer here is the same as number two. When you have a simple system and a plan in place for allocating funds from your revenue stream, you can and will plan for growth – without going into debt.
You can pay cash as you go to build or expand, without digging a hole. In fact, if you were to set aside the money you were spending every month for your debt (once the debt is paid off), you’d be amazed how much that frees you up to pursue growth opportunities you never could’ve considered before!
Imagine being able to take that money you pay toward your debt every month, put it in an account, and watch it grow – making you wealthy, rather than making the bank or credit card company wealthy. How amazing would that feel?
Business debt is a weight on your shoulders every day – whether you realize it or not. Shifting your thinking on these long-held beliefs will change your financial situation for the better. It will also relieve a lot of stress! When you have a strategic plan and are allocating funds in a purposeful way, your business finances will be stronger, more stable, and healthy. Financial stability and sustainable business growth will be your future.
So, give some thought to your beliefs and behaviors around that valuable resource of revenue – and debt. Ask yourself how your beliefs and behaviors are affecting your business. Challenge those long-held beliefs and make the decision to start making different choices. Intentional choices. Your business finances will improve and financial worries will be in your rearview.