Overwhelmed by maxed-out credit cards? Installment payments? Personal and business loans? And all this on top of day-to-day business and living expenses? Many start-ups are. Sure, you can juggle and struggle for a short time, but interest-only payments on some debts and minimum payments on others may set you up for disaster. An economic downturn, loss of a major client or any setback can impact your credit rating, prompt lawsuits or force bankruptcy. To avoid disaster tomorrow, take action today with these tips:
Stop borrowing. You can't borrow your way out of debt. Instead, look into a bank loan or a line of credit guaranteed by the SBA. Lines of credit, available through banks at about prime plus two, are ideal for getting through a cash crunch. If you need equipment or supplies only temporarily, ask suppliers for credit. They often allow a 30 to 60 day extension on payments. Interest, when asked for, is usually reasonable.
Limit yourself to two credit cards: one for business exclusively, the other for personal expenses. Use each sparingly and only for planned or emergency purchases. Emergencies do not include impulse buying. If that's a problem for you, don't carry any credit cards.
Focus your efforts on increasing sales, collecting receivables and reducing operating expenses. But don't cut legitimate expenses that contribute to income (advertising, for instance).
Can you expand your product line or menu of services? Ask customers for suggestions. Variations on a theme bring in the most business and repeat buyers.
Look into disability and life insurance. Protect your family's future, and ensure payment of debts should something happen to you.
If it's apparent that income will not rise to meet expenses, seek help now. First talk with your banker. Explain the situation honestly to establish trust and better enable the banker to guide you. Then, if necessary, contact a debt counselor. The nonprofit Myvesta.org (800-680-3328), formerly Debt Counselors of America, in Washington, DC, provides comprehensive financial guidance-from business plans and help in consolidating your debts to creating realistic payment plans and reducing or eliminating the interest. For referrals to financial planners, contact the Financial Planning Association (800-282-7526, www.fpanet.org).
All excess cash should go toward paying off debt. First pay the accounts charging the highest interest, such as pricey credit cards. don't rush to pay off a low-rate home equity loan-you do have other priorities!
Paul DeCeglie (MrWritePDC@aol.com) is a former staff reporter for Journal of Commerce and American Banker.