Control Your Liabilities and Reduce Debt
Debt is a big problem in the US. If you’re a fan of Dave Ramsey and any of the other money-saving experts you see on TV, you are not surprised by the impact of debt on the US economy.
Debt is easy to fall into, but it is also easy to not pay it off and get into trouble. And this applies as much to your business as it does to your own personal finances. If you let debt take over your business, it can do terrible damage to the future prospects and profitability of your business.
The Problem of Debt
Few businesses have the capital needed to grow without resorting to taking out borrowing large sums of money via credit cards or bank loans.
Businesses are built on loans. But with loans comes debt. And debt can become the corrosion that starts to eat away at the solid financial foundation you’ve built for your company.
So, what to do about it? You need to regularly review your business’s liabilities. Monitor your debt liabilities. Plus, have a plan in place regarding how you’re going to pay off your debts as quickly and as cheaply as possible.
Interest on business loans is the real killer here.
For a short-term loan, that additional interest percentage has less of an impact. But, if you’re paying off a loan over a longer period then that interest begins to build up. Eventually, you’re caught in a cycle where the interest added each month outstrips the repayment amount you can afford to pay.
The trick here is to pay off the loan as soon as it’s possible to do so. The quicker you pay the debt back, the less you’ll end up paying in the long term.
If you’re paying off a 30-year loan, but you have the ability to pay it off in 10 years, you immediately save yourself a chunk of money. This protects your business and your bottom line in the long run.
Suffering Now to Benefit the Future
Building up debt over time and getting stuck in the cycle of meeting repayments but not reducing the debt is a toxic situation for any business.
Even worse, if your business were to suffer a downturn, you face making the choice between paying yourself or the bank. Beyond that is the potential of having the bank call the loan and beginning a death spiral.
Don't fall into this trap.
The key here is to keep tight control of your debt situation at all times. Never lose sight of the impact it can have on your profits.
If you’re dipping below your acceptable level of profit it is likely due to the drain of those debt repayments.
How do you make sure you reduce your debt pains and keep your long-term prospects looking positive?
Keep debt in front of you – Know where your debts lie and keep on top of your debt situation at all times. The better informed you are about these liabilities, the more you can do to ease the debt pain.
Pay off the debt as early as possible – Plough profit back into the business and pay off any debts as soon as you can. Take a short-term hit now on your profits to reduce long-term pain in the future.
Don’t get caught in the interest cycle – Check the terms and interest rates on any loans before you agree to them. Make sure you can pay off enough each month to beat the cycle of interest on top of the loan. If you don’t, you’ll end up paying interest on the loan forever.
Struggling with Your Debt?
If you let debt get out of control, it can begin to limit your future plans and hold you back from achieving your business’s true potential.
If you’re experiencing debt issues and need a helping hand, please come and talk to us. There are plenty of options we can discuss to minimize the impact of your debts and get you back on track to financial efficiency. Let us help you get back control of your loans and remove your debt pain for good.
Reach out to us at Holden Moss Knott Clark & Copley P.A. to start meeting your aspirations. If you would like more information about your debt options or other financial strategies, give us a call for a no-risk tax discovery session. Call (919) 556-6216 or contact us via email at admin@holdenmoss.com. We look forward to working with you.