To get a business up and running, taking on debt is often necessary. However, statistics show that about half of new businesses fail within the first five years because of financial troubles, such as excess debt, poorly managed credit, and low working capital. Profitable businesses need to be able to take on and handle debt in order to be successful in the long term. Business Innovation Management shares five ways you can start improving the financial health of your business.
1. Form an LLC
You have several options for structuring your business, but forming a limited liability company has added tax advantages, including the flexibility to choose how you want to be taxed. Whether you choose to be taxed similarly to a corporation or a sole proprietorship, you could avoid double taxation or treat your LLC’s income as personal income. Many businesses expenses and special deductions could be applied to your personal return as well.
Every state has slightly different regulations concerning the formation, management, and taxation of an LLC, so make sure you are up to date on the current laws. The best way to ensure you are in compliance is to consult a lawyer, but if you want to avoid the expensive lawyer fees, consider hiring a formation service to help you cover your bases.
2. Create a Business Plan
Commonly, business plans are used to convey your business intentions to others, whether it be for potential lenders, suppliers, or landlords. However, they’re also important for strategic planning, forcing you to come up with detailed financial and marketing plans and make sensible projections. Having that foresight will give you a roadmap to follow if business gets tough, allowing you to navigate the debt issue with ease.
Business plans are also an essential part of applications for grants, which can be excellent sources of capital for small businesses. There are many grant-finding resources available for small businesses, such as Canada GrantWatch, Futurepreneur Canada, and Fundingportal. Unfortunately, grants can be a little difficult to find because they’re competitive and highly specific about what industries they apply to and how the funds can be used.
3. Reduce Spending and Boost Income
It may take time to figure out what sorts of changes you’ll need to make, but in the end, it’s all about improving efficiency. Maybe your business could benefit from switching up the prices or adding new services that are in high demand. There could even be internal expenses that add up over time, such as extra office space or nonessential perks. Weigh the pros and cons of each facet of your business and see where you can increase savings.
4. Consolidate Business Debt
Sometimes, if you overextend your debts, you could be paying multiple accounts at once, ultimately costing you more money in the short term. Consolidation is similar to refinancing in that you combine your business debts into one easy-to-manage monthly payment. This makes budgeting a cinch, allowing you to plan ahead with more flexibility.
5. Develop Your Skills
Going back to school might seem like a daunting task, but many schools are seeing record increases in applications, particularly for online programs. Take the time to deepen your knowledge of marketing, strategic planning, economics, and accounting by earning an MBA to better handle any debt issues. Additionally, you can still work, be with family, and take classes, since online programs offer unmatched flexibility.
Excess business debt can be stressful to handle, but a few simple changes can really make a difference. Creating plans, increasing financial efficiency, and searching for grants can help your business get back on track.
Post authored by Gloria Martinez of womenled.org