Don’t break into a sweat yet. Being an accountant, I can assure you that if you follow some guidelines you might still have a business to plan a future for.

To work out the future of your business and how to free your business from financial debt, you’d need Balance Sheets and Profit & Loss statements for the last 3 years. Even if you’ve been in the business for less than 3 years, gather the above mentioned documents to work out your strategy.

Doing business creates debt. Just like it creates income. This is because small businesses take out substantial loans to get their company started. Sometimes, loans are taken out just to expand a business. It’s all well till the economy is booming and business is smooth. The moment business slows down; these debts can inundate your business.

Okay, the key to saving your business is to work out a break-even analysis. Compare your revenues with your expenses. You might have some fixed expenses like insurance, payments on loans, utilities, rent, employee salaries, cost of stocked goods, etc. Whereas, you also might have some variable expenses like advertising, promotional expense, marketing, etc.

To generate average revenue, consider your business income over the last 6 months. Now, subtract your fixed expenses from the average figure. If things are good you might have a positive balance. If not, you will have to take some drastic steps to even it out. This calculation will tell you how much money you need to take care of the fixed expenses every month. It’s always better to review your variable expenses and bring them down, as opposed to cutting down your fixed expenses. However, it might happen that you still don’t have enough money to cover your debts. In such a case, you might have to reconsider moving to a smaller office or cutting you monthly overhead expenses. If you business doesn’t require a customer to walk-in every time he needs something, I’d recommend you make some room in your house for some office space. This way you can eliminate monthly rent. Cut down expenses that your business can do without.

Side by side, use your Profit & Loss account to figure out if your revenues are increasing every year by a healthy margin. I’d say 10-12%. Now, look at the cost of sales and see if they are in proportion to your revenues. If things aren’t as they should be, you must consider increasing the price of your goods, products or services. You can even think about changing the place you buy your goods from. Your revenue has to grow in proportion to your cost. Check out, by what percentage is you net income increasing. Is your net income increasing in proportion to the revenues you generate? Are your expenses eating up your margin? Once you’ve worked out your expenses vs income ratio, evaluate all the expenses and cut down on whatever you can. See if you have any money left (which you should) to pay off your debts. Even an amount as small as £100 can help you pay off your debts. Use this money to pay off your moderate debts first before moving onto the bigger ones.

In my experience, many small business run into trouble through unsecured debts like credit cards. Credit cards are so tempting and easy to use that it’s not a surprise that you end up overspending. The more credit cards you have, the easier it will be for you to run into a debt. Get rid of those extra credit cards. Keep only one. Pay off the smaller credit cards and use the minimums you save every month to pay off the next credit card. Implement this strategy till you have only once credit card left (this should be the one with minimum interest).

Stay away from creating more debt once you have scaled them down. Don’t buy things you can do without. Specially, don’t create debts to buy things you want. Use the money you have saved up to expand your business. Don’t move into a bigger office as long as you are generating profits from the premises you have right now. Save up at least a 6 month supply for your business, in case things slow down. This will create a security blanket and you will be able to do business without being ill-at-ease. Once again I’d like to say, use your savings and revenues to expand your business, as opposed to taking out loans to do that.

Finally, consult a business advisor or a chartered accountant before you do anything that might affect your business in the long term.

I hope the foregoing is useful – if you need any help contact me via
http://www.smithkennedy.co.uk

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