As a business owner or entrepreneur, you are best placed to understand that playing the role of captain for a fledging or veteran business is no smooth sailing. The financial health of your business will naturally fluctuate throughout each month of trading, which could restrict you from crossing the line to achieving new financial targets.
As a result, you may turn to take out a business loan, such as growth finance, invoice finance or asset finance to bolster your position, better serve customers and increase capacity. You may wish to take out additional finance to roll out an extensive advertising strategy to build a brand community and raise awareness of your service offering.
After reaching your desired position of strength, you may look to downsize the debts of your small business and minimise company liabilities. There are many instant benefits to improving the financial position of your business gradually, and there are several routes available to help you achieve this.
What are the benefits of clearing company debts, earlier – rather than later?
Although your loan rate may be competitive, it is a liability that weighs down on company cash flow, reducing the capital available in the business to replenish stock and invest in the growth of your business. As interest payments mount to serious money, slowly reducing the outstanding debts of your business can help spare cash in the company and provide a reserve pot for rainy days.
- Boost credit score – Your business will have a credit profile, just as you do personally. Unloading debt can help improve your credit score, giving you access to better borrowing rates
- Acquisition opportunities – If you wish to sell your business in the future or if another business is interested in acquiring your start-up, one of the first questions you will be asked is – what are your outstanding liabilities? When acquiring or selling a business, the loan value will influence the value of offers
- Presentation of business – Your behaviour towards company debt will be an instant reflection of your business. A business riddled with overwhelming debt is likely to appear more irresponsible than a business with sustainable debt levels
- Economic risk – The coronavirus pandemic has taught us that every business, from independent shopfronts to global empires, can be impacted by economic uncertainty. Covid-19 adversely impacted economies on a worldwide scale, pushing business owners to the brink of collapse
This highlights the importance of operating a business with low debt levels and a healthy pool of reserves to patch any unexpected gaps in income. The financial situation for each business or entrepreneur is likely to vary, however, the premise remains the same concerning the importance of reducing debts.
To reach the next milestone in the lifetime of your business through client and market growth, you will need to reduce company debts and free funds to climb the ladder and surpass competitors. By turning the page from making unsurmountable loan repayments, to turning your focus to investing in the likes of property, stocks, and marketing, you can raise the benchmark for your company.