Your business has pushed past the beginning stages, and you are starting to grow. Congratulations! Still, along with the excitement and opportunity, you are going to run into some growing pains. You want to both increase your business and decrease your debt, and it can be hard to do both of those things at the same time.
If you are looking to take steps toward greater revenue and profitability, you need to adjust your financial approach. You still need to invest in yourself, but you should do so in a way that pushes toward your goals, without making your life harder in the meantime. Focus in on your budget to find your path forward.
Create a Current Budget
When you first launch, it can feel like everything is on fire. Your budget becomes more of a guideline than a rule, because you need to do things that never really fit neatly into your plan. You often take loans in whatever terms you can to meet emergency needs, and then look back at the end of the month to try to retrofit a plan to what you have in place.
This scenario happens all too often. Most entrepreneurs learn as they go - they find out how much they didn't know, and adjust on the fly. Still, as your business grows and matures, you need to take time to step back and assess where you are. Before you can plan forward, you need to understand your starting point. Look at your revenues and your expenses, and write everything down. This includes your debt payments and major vendor purchases, but also every other expense from your payroll to the paper in your cash registers.
Analyze and Create Timelines
The numbers can be overwhelming. As tempting as it may be to just hide and hold the status quo, things rarely get better without a plan. You know what your financials look like; now you need to figure out what they can and should be. Look through your expenses and identify ways you can trim them, either by working with different vendors or eliminating unnecessary payments.
The difference between a wish and a plan, though, is a time frame. You need to think not only about where you want to be, but how to get there within the right window. Take the time to identify the steps you need to take, and then decide how soon you can reasonably take them. Be fair to yourself and allow for a realistic period of time to get this done, but you should still push yourself to move forward.
Look for Economies of Scale
One of the big advantages you have as a growing business is the chance to save money by buying smarter and in bulk. Where you once needed to buy only what was necessary as it came up, you can now make strategic purchases and store up your regular supplies and necessities. This not only helps you be more ready and efficient in your day to day operations, but also creates much cheaper per-item purchasing options through economies of scale.
Buying ahead of your actual needs also gives you time to better assess your vendor choices. The company delivering office supplies on the fly may have competitors who can cut those expenses in half. Look beyond the biggest names for the best combination of service and price. The further ahead you can get on this, the more effectively you can manage the process and your vendor relationships.
Restructure Your Debt
The same philosophy applies to your debt. Early on, you likely took on loans that gave you the funds you had to have when you needed them. Lenders willing to loan to a fledgling business met your immediate needs--and left you with high interest rates and onerous payments. Now, as you look to expand, similar loans are available, but can seriously cut into your profit margins.
This is where, instead of simply adding to your loans, you should look at ways to restructure. When you re-examine individual loans, start with the ones on which the payments are high in relation to the remaining balance. There comes a time with all loans when your payment amount could buy a lot more capital than what you still owe. That's the time to refinance. Given your revenue growth, you should be in a better position to demand more favorable terms.
Beyond the individual loan level, you can also look to consolidation loans. These larger products give you the chance to wrap several payments together into one, significantly reducing your total monthly payments and making it easier to keep track of your expenditures.
Kenmore Capital works regularly with growing businesses looking to right their financial ship. Give us a call today. We'll get you on a stronger path to help you grow.