A common cause of business failure is the struggle to keep up with fees, debt, taxes, and other operational expenses. Even the most well-intentioned entrepreneurs can find themselves in a position where they owe more money than they have.
Fortunately, there are several steps you can take to increase your business’s long-term financial health and protect your business from failure. Here are five tips to help you get your business out of debt and increase long-term financial health.
The first step to increasing your business’s long-term financial health is to know where your money goes. This will help you identify areas of weakness and better prioritize your expenses.
Start by breaking down operating expenses into categories such as rent/utilities, employee compensation, materials/supplies, and technology/software. Then analyze each category to understand how much is actually being spent.
This ties into establishing a budget. Once you identify where your money goes each month, you can start to reduce or even eliminate expenses that aren’t necessary. But you won’t know where to make adjustments until you first prioritize your spending.
If you don’t know where to start, consider speaking with an accountant or business mentor/coach. These professionals often have extensive experience helping business owners prioritize spending as it relates to long-term financial health.
If you find yourself with little cash flow and struggling to keep your business afloat, it’s important to diversify revenue streams and sources of cash flow. Some of the most popular ways to do this are through partnerships and affiliate marketing.
Partnerships are useful when you have a product that someone else can sell. For example, if you have a clothing line, you can partner with a clothing store to sell your clothes. The clothing store will order a certain amount each month. This way, both of you benefit from the partnership and the clothing store gets to sell more.
An affiliate marketing partnership can be more challenging. In this case, you have a product you’re interested in selling and an affiliate that will help you promote it. The affiliate will receive a portion of the sale, depending on what they sell the product for.
Many businesses find themselves in debt due to an inability to track expenses. This can be frustrating, as there are a number of software solutions that can help you manage and track expenses.
One of the most popular solutions is cloud-based business accounting software, which allows you to track and manage your expenses from a single platform. Moreover, this online tool will help you keep track of your assets, accounts, and transactions. With the right platform, you’ll even be able to set up automated systems to facilitate recurring tasks, such as sending monthly invoices and tracking accounts payable.
Many business owners opt for forming an LLC as a means to improve financial health. LLCs have tax advantages that other business structures don’t. As a result, you will owe less at tax time.
Please note that each state has unique laws regarding LLC business structures. You’ll want to research your state’s laws to ensure that you are in compliance. If you’d rather leave this legwork to someone else, consider hiring an LLC formation service before hiring an expensive lawyer. These services are typically more cost-effective and highly efficient in forming LLCs.
Debt that piles up is never good for your bottom line. To turn your business into a thriving venture that remains in the black, take steps today to eliminate your debt. By developing a budget, reducing expenses, adding new cash streams, implementing improved accounting software and converting to an LLC, you set the stage for an improved business that you can take to new heights.
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