5 Smart Ways To Eliminate Debt & Grow Your Small Business
If you ask any
small business owner or entrepreneur to name their foremost hardest challenges
that don`t let them sleep in the night, they will say without a second thought-
money!
Paying off debts,
growing business, increasing profitability, and achieving financial freedom are
a few challenges that SMEs and MSMEs often face. This was true before the
pandemic, but after it, it has become even more crucial for entrepreneurs to
overcome money challenges.
According to a
survey published in Forbes, “95% of businesses surveyed said the pandemic had
affected their bottom line, and 53% estimated that 2020 revenue would drop by
more than a quarter.”
Even the best business
coaches often come across questions like ‘how to get my business out of
debt’ or ‘how can I repay my loan as soon as possible’ by small business
owners.
Most
entrepreneurs begin their start-up by arranging funds through debt funding,
equity funding, loans, or through other less formal sources like friends &
family. But the experience of being in debt can be scary as well as
overwhelming.
If managed
smartly, borrowing funds can help you accomplish your goals. On the other hand,
mismanaged business debts can not
only affect your financial wellbeing but can also cause mental stress,
especially to small business owners that are worse affected due to the Covid-19
pandemic.
There are many
government schemes to help small business owners with loans. The Indian
government had offered relief to MSMEs in the form of subordinated debts,
collateral-free loans, and equity infusion through its Fund of Funds (FoF)
scheme in 2020. This scheme proposes to purchase up to 15% growth capital in
high-credit MSMEs.
You can watch
this video by Dr. Vivek Bindra on "How to Pay Off Your Loans":
If you have a well-thought financial plan, you can solve the cumbersome process of taking your business out of debt, just like others. Here is how you can chart your way out of debt:
1.
Manage Your Debts
The first step
that will take you closer to managing your debt is to organize all the details
of exactly what you owe. Make a list of your debts with EMIs, interest rates,
and tenures. This will help you recognize the costliest debts.
2.
Settle Costliest Debts First
After sorting
out your debts, pick the costliest one! Costly debts, if not paid on time, will
extract the highest interest. This can drain your finances. Hence, settle your costliest debts on a priority basis.
3.
Plan Monthly Budget
One of the most
vital debt management techniques is to plan your monthly budget. Make a list of
your income & expenses while deciding your monthly budget. This will give
you a clear picture to think about ways to reduce your daily expenditure.
Having details of monthly cash inflow and outflow can help you save money that
you can use to clear your debt.
4.
Consolidate Loans
Sometimes
keeping a track of all the loans can be difficult. If you have too many loans,
consolidating them into one can be a good idea. This will leave you with just
one EMI. Business loans, personal loans, and credit cards provide you with this
option. It will remove various debts and leave you with just one loan to track.
5.
Insure Against Economic Shocks
The future is
uncertain and it is wise to protect yourself from uncertainties that you might
be exposed to. E.g. a loss of a job could lead to delayed EMIs. So, to avoid
such situations, create an emergency fund to help you sustain yourself during a
bad phase. Ideally, this fund should be 3-6 times more than your current
monthly income.
Repaying loans
is a moral, legal, and also financial obligation. With smart and effective debt management strategies, you too can
get your business out of debt. Learn how to manage your debt with the
top-industry leaders from our Problem
Solving Courses.
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