“We are what we repeatedly do. Excellence then is not an art, but a habit.”
-Aristotle
“Evaluating Your Business Financial Health: Cash Flow, Debt, Equity, Assets & Liabilities”
Feeling the Squeeze? Let's Untangle Your Business’ health
Running a business can sometimes feel like being stuck on a hamster wheel – you're working hard, but not getting ahead.
If business debt and business cash flow pressures are weighing you down, it's time to take a breather and get a clearer picture of your business financial situation.
Ignoring the problem won't make it go away, and pretending everything is fine can actually make things worse.
Think of it like this: you wouldn't ignore a leaky roof or a sputtering engine, would you?
Your business finances deserve the same attention. This article will help you understand your business a little better, spot any warning signs, and take simple steps to get back in control…
How Much Business Debt is Too Much?
While feeling stressed about business debt is understandable, we need to go beyond just feelings.
Here are two simple ways to measure how much debt your business has:
Debt Compared to Your Own Money
Imagine your business is a pie. This compares the slice of the pie that comes from loans (debt) versus the slice that comes from your own investment (equity). If most of the pie is from loans, it's riskier, like building a house on a shaky foundation.
Can You Afford Your Payments?
This checks if you're earning enough money from business operations to comfortably pay your monthly loan installments (monthly debt service).
If you're barely scraping by, it's like walking a tightrope – one misstep and things could go wrong.
Reading Your Business Report Card
These measurements come from your financial statements, which are like your business's report card. They show how your business is doing:
Balance Sheet
A snapshot of what you own (like equipment and cash) and what you owe (like loans and bills) at a specific moment.
Income Statement
Shows how much money you made (sales) and how much you spent (expenses) over a period of time.
Cash Flow Statement
Tracks where your money is coming from and where it's going, like watching the flow of water in a river.
By looking at these reports, you can spot patterns, see potential problems early on, and make smarter choices about handling your business debt.
Warning Signs: Is Business Debt Taking Over?
While numbers can tell part of the story, sometimes your gut feeling is the first clue that something's not right.
Here are some telltale signs that your business debt might be getting out of hand:
Cash Flow Crunches
Struggling to pay your loans on time, every time: It's one thing to be a little late here and there, but if you're consistently scrambling to make your loan payments, it's a sign that your debt is outpacing your ability to keep up. It's like trying to fill a bathtub with a leaky bucket – you're putting water in, but it's draining out faster than you can replenish it.
Taking out new loans just to pay off old ones: This is a classic sign of trouble. It's like juggling bills – you're constantly shifting things around, but never actually getting ahead. This can quickly spiral out of control, leading to a mountain of debt that feels impossible to climb.
Using credit cards or quick loans with high fees to cover daily expenses: If you're relying on high-interest credit cards or those "easy approval" loans with hefty fees just to keep the lights on or pay your employees, it's a sign that your business isn't generating enough cash to sustain itself. It's like using your emergency savings to buy groceries – it might work in the short term, but it's not a sustainable solution.
Trouble Getting New Funding
Getting rejected when you apply for new loans: Lenders have ways of assessing risk, and if they're turning you down, it's a sign that they don't see your business as a safe bet. This can be a major red flag, as it limits your options for accessing capital when you need it most.
Strained Relationships
Getting frequent calls and reminders from lenders: If lenders are constantly calling or emailing you about missed or late payments, it's a sign that they're concerned about your ability to repay. This can damage your relationship with them and make it harder to secure financing in the future.
Finding it hard to pay your employees or suppliers on time: Late payments to employees can lead to morale problems and even legal issues. Late payments to suppliers can damage your reputation and make it difficult to secure the goods and services you need to operate your business. These strained relationships can have a ripple effect, impacting your business's ability to function smoothly.
Business Performance
Noticing your sales or profits are going down: This is a major warning sign that something is amiss. Declining sales or profits can be a symptom of various underlying problems, including poor financial management, ineffective marketing, or increased competition. If your business isn't generating enough revenue to cover its expenses, including debt payments, it's a sign that you need to take action to address the root causes.
“These are just some of the everyday signs that your business debt might be getting out of hand.”
If you're experiencing any of these, it's crucial to take a step back, assess your situation, and seek professional help if needed.
Remember, addressing your debt problems proactively can prevent them from escalating into a full-blown crisis and help you build a stronger, more sustainable business for the future.
Taking Charge:
Simple Steps to a Healthier Business
If any of these warning signs sound familiar, don't panic!
There are things you can do to get back on track:
Create a Spending Plan:
Write down all the money coming in and going out of your business. This helps you see where you can cut back and have more money to pay off debt.
Talk to Your Lenders:
Reach out to them and explain your situation. Many lenders are willing to work with you, like giving you more time to repay or lowering your interest rate.
Combine Your Loans:
If you have many different loans, see if you can combine them into one. This can make it easier to manage and might even lower your interest costs.
Shop for a Better Loan:
If interest rates have gone down since you got your loan, you might be able to get a new loan with a lower rate and save money.
Get Expert Help:
A business finance advisor is like a coach for your money. They can help you create a plan to tackle your debt, negotiate with lenders, and make smart financial decisions.
Ignoring business debt distress and pressure is like ignoring a toothache – it won't get better on its own.
By being proactive, understanding your business finances, and getting help when you need it, you can take charge of your business debt, improve your business' health, and build a stronger future.
Ready to breathe easier? Contact us today for a free chat. We'll help you understand your options, create a plan that works for you, and guide you towards a debt-free future.
Don’t wait for the situation to worsen
The sooner you act, the more options you’ll have. Schedule a consultation today and take the first step toward saving your business—and your future.
Remember, more business debt isn’t the answer. A more effective business strategy is.
Click to setup an introduction meeting to discuss your situation and next best steps.
Bernarsky Advisors
Business Finance and Strategy Advice
Refinance. Restructure. Reorganize.
(See more of our articles about Business Finance and Strategy below…)
WHAT IS THE BEST AND SAFEST WAY FOR YOUR BUSINESS TO DEAL WITH HIGH BUSINESS DEBT PAYMENTS?
It is NOT by stopping ACH payments.
It is NOT by taking on another business loan.
It is NOT ALWAYS a Refinancing
It is NOT by entering into a debt settlement program.
Find out the BEST strategies to get your Business back to where it was
Setup a meeting with a business finance & strategy expert to discuss all of your options!
Read some other recent Business Finance and Business Strategy articles:
