If you own a small business, you might have business debt. It could be a large amount, a small amount, but in any amount it prevents you from investing your income into instruments that make you money. How do you tackle this debt, how do you classify it, and what steps can you take to eliminate it?
Just as with your personal financial life, you need to stock of your situation and treat your business debt. In Total Money Makeover, Dave Ramsey advises you put business debt into a “debt snowball” to be paid down as quickly as possible Ramsey tells people that beginning with the smallest debt, pay it off right away and it gives you a sense of real accomplishment. You apply the same principle to your small business debt. Perhaps you have a credit card balance or equipment loan to pay. Pay it off now. Then you can use the money you paid on that loan to apply to the next largest loan. By using this method you will eliminate your accumulated debt.
Ramsey says by starting small, paying off the smallest debt first, you not only feel good about the progress you are making, you provide additional funds to pay off the next highest debt, your interest payments will reduce as the principle is paid down, your financial stability strengthens and you will see there is a way out of the mess you created. As you pay off small and medium debts, the larger debts become more manageable and you know with certainty that you can get out of debt and begin to save money.
The goal of this method is to establish an emergency fund, a savings account, pay off all your debt, and begin investing in your future by putting money into financial instruments that work for you, instead of you having to work to pay off debt. Here is what Ramsey says in his book, Total Money Makeover, “With gazelle intensity, great focus, extreme sacrifice, selling things, and working extra, we clear all debt. Again, if you are fired up, normally this will happen within eighteen to twenty months. Many people find a way to shorten the time with sheer intensity, and God tends to pour blessings going in a direction He wants them to go.” Finding your way out of debt will help you find a way to have a life again.
The mounting debt we accumulate in our personal lives and business lives takes years creates stress that shortens our lives. Running a business is not the same thing as running your household, but there are some common practices in both arenas. When you spend far more money than you can make, your income goes out to pay off debt, leaving you angry and frustrated that you can’t really “live” because of your debt. You chose immediate gratification over financial wellbeing. That might sound harsh, but it is the truth.
You might run a business where constant debt turnover is a fact of life. You can still apply the principles to your overall strategy. Remember this, as you free up your income from paying off debt to investing, you will have more money. You can pay cash for your business needs. It is not impossible and there are companies who operate in this way. The more cash you have, the better your position, the less chance you have to pay more for what you need because you have to finance your purchases.
With an emergency fund in place, savings in place, and debt reduction an ongoing function of your financial life, you can begin to plan how to increase your business, or change the way you do things in your business. Your options will increase as your debt decreases. Even if you are a solo practitioner who is a consultant, you will find stress levels decreasing if you have provisions for times when business is slow. If nothing else has transpired the past four years, our awareness of our lack of security has risen. We now know that no one is guaranteed a job, or customers, or our income remaining stable. The best thing we can do as individuals and business owners is to prepare for the difficult times even while we enjoy our lives every day.
Have a terrific day,
Patricia
No comments:
Post a Comment