The 5 Biggest Causes Of Business Debt
Debts can sometimes be necessary in business. However, many companies end up relying on loans and credit cards unnecessarily.
By learning to avoid debt, you can maximize your profits and keep your business afloat. Here are some of the biggest causes of business debt.
1. Equipment Purchases
Starting a business can be very expensive. There could be a lot of equipment to acquire, and unless you have a lot of equity up front, you may not be able to buy this equipment in cash.
Below are a few ways to avoid debt as a result of equipment purchase:
- Purchase only what you need - Consider used equipment - Lease equipment
2. Poor Budgeting
Many business owners are too busy to check their finances and end up making reckless decisions that may result in overspending. Taking the time to budget could make you think twice about using your credit card and prevent you from getting into arrears.
Below are a few ways to become better at budgeting in business:
- Check your accounts - Forecast your earnings - Calendar your payments
A lack of customers means a lack of revenue. If there’s not enough money coming in, you likely won’t have enough money to cover expenses going out.
3. A Lack Of Customers
There are many ways to attract more customers and up your revenue: - Up your marketing - Nurture leads - Reconsider your products/services
Late payments can often cause a chain reaction. When you’re not getting paid on time, you may struggle to pay your suppliers on time.
4. Late Paying Customers
Below are just a few ways in which you can reduce late payments: - Vet your customers - Automate invoices and reminders - Consider early repayment incentives/late payment penalties
Often, businesses borrow money to pay for emergency costs. Such emergencies tend not to be budgeted for – they could include tech problems, lawsuits, or even victimization such as burglary.
5. Lack Of Emergency Planning
Ways in which you can reduce the potential amount of money you may need to borrow: - Protect your business - Set up a rainy day fund - Invest in preventative measures
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