In business, you do a lot of financial transactions and take risks. Sometimes you take on debt to expand your business. Long is a double-edged sword. If managed properly, it can help you develop and grow. But if mismanaged, it could strain your finances and even threaten the viability of your business. Most companies declare bankruptcy because they are unable to pay their debts. As a business owner, it’s better to take the bull by the horns before things take a turn for the worse.
A skilled accountant can help you deal with debt in a structured way.
How Can Accounting Professionals Help Small Business Owners Manage Debt?
Debt can become a problem due to unforeseen circumstances, economic crisis, deficiencies in budgeting and forecasting, and cash flow problems. An accountant not only prepares financial statements, but also understands the intricacies of financial management and can help you set up a system to monitor and manage the smooth flow of cash through your business, identify gaps and resolve them. An accountant can wear the hat of a debt counselor and get your finances in order.
Assessment of the company’s financial situation
When faced with insurmountable debt, the first step is to gather information, structure the data and assess your situation. This includes a list of all your debts to determine how much you owe to whom, the due date, interest and repayment terms. The next step is to list how much money you can set aside to pay off your debt without affecting your day-to-day operations. Accounting professionals are experts in analyzing financial statements and compiling an overview of your financial situation.
Once you know your financial situation, you can create a debt repayment plan that works for you.
Creating a debt repayment plan
When creating a debt repayment plan, prioritize repayment as follows:
- First, pay off high-interest, tax-free debt like credit cards.
- Then pay off the debt with low interest but no tax benefits.
- Then pay back the debt with high interest and tax benefits.
- Finally, consider low-interest, tax-advantaged debt such as a mortgage.
This will help you reduce your interest and tax bills and direct that money towards paying down your principal. The repayment plan must be realistic and your business cash flows must be taken into account. Accountants can help you with all the calculations and how much you will save in different scenarios.
Negotiation with creditors and debt restructuring
When analyzing the terms of the debt, you can also consider negotiating terms with some creditors by offering to pay them off early, asking for a longer repayment term or lower interest rates. An accountant can help you deal with this by presenting favorable terms and getting them accepted by creditors.
You can also consider debt restructuring or consolidating different types of debt with different interest rates into one debt with a lower interest rate. Debt restructuring should be feasible and bring interest savings and longer repayment terms. It is an ongoing process. As your credit score improves, you can get better loan terms. Depending on your financial situation, your accountant can help you get the best terms. Effective communication is the key.
Budgeting and cost cutting
Once you’ve come up with a debt repayment strategy, it’s time to look at your financial statements and ensure you meet your obligations in all business situations, good and bad. You need to make a realistic budget and stick to it.
A qualified accountant can help you develop a detailed budget based on expenses, income and cash flow. They can also help you identify areas where you can cut costs and increase revenue by analyzing your financial reports. For example, you can rent equipment or office space to make extra money. Or you can sell all unused assets and use the proceeds to pay off your most expensive debt.
The accountant will monitor the outcome of these efforts and make adjustments if necessary to accommodate changes in the financial situation.
Manage cash flow and forecast finances
Budgeting and cost cutting will only work when the job is paid. Cash flow management is very important at such times. An accountant can help you streamline the invoicing and receivables process by offering clients favorable offers and regular audits. Bad debts or late payments from customers will turn into your arrears and add to your debt burden. Therefore, it is crucial to keep customer loans to a minimum and only give credit to those customers who pay on time.
While managing cash flow, you can also forecast future cash flows for the next quarter, six months, or year. You can add some worst case scenarios and how they might affect your cash flow. Accordingly, you can create an emergency fund to tide you over during tough times. An accountant can make these numbers your strength and help you build a robust financial plan that is realistic and achievable if executed with discipline.
Avoid new borrowing
Once your company manages debt, it is vital to maintain this situation and avoid taking on new debt unless it is the best alternative. Effective financial planning can help you build a profitable business and leverage it for future growth.
Contact DDL & Co. in the Niagara Region to help you manage your business debts
You’d be surprised to know how much accountants can do contribute to business finances. While preparing financial reports is their strength, optimizing every lineBalance sheet, profit and loss and cash flow statements are also their specialty. To learn more about how DDL & Co. can provide you with the best accounting expertise and more, contact us online or call us at 905-680-8669.
