Debt can be a scary thing, but you can avoid it by following this simple list of best practices like having an emergency fund and tracking your expenses.
5 strategies to avoid debt in business
No one tries to get in debt. It's just one of those things that happen without your notice, or may even feel as if it's out of your control.
It’s so easy to get into debt but challenging to get out. Sometimes, it only takes a few minutes to create millions of Naira in debt and years to pay off.
Debts should be completely avoided by any entrepreneur who hopes to succeed and make it big in business because they could suffocate your establishment if they are not well managed.
Debts may play a role in helping to revive a dying business; but where possible they should be avoided.
You may be tempted to go into borrowing as a way to get funds to run one’s enterprise. Before doing so, you have to be sure you’re able to manage the fund well so as to make profit and pay back the capital and the interest.
If you wish to continue to run your business without tears and without fears of losing your assets to your creditors, you must avoid being caught in a tight corner. Don’t go for money that eventually becomes difficult for you to pay back.
Perhaps you’ve tried several strategies to get out of debt but only found yourself sinking deeper. We'll share practical tips you can implement immediately to avoid your debt profile and start building wealth today.
These are 5 strategies to avoid getting into Debt. Follow these strategies to avoid falling into a hole of debt:
1. Don't borrow money to run your business
Borrowing could be dangerous because if your projected profit becomes unrealizable, you are going to run into debt.
Taking loans from the banks for example during this period of economic hardship could spell doom if the value of your currency continues to depreciate.
The profit you would make could be very minimal while the losses accumulate. The depreciation in the value of the currency means you would have to pay more in terms of the interest and capital when the currency suddenly appreciates because the interest rate is fixed.
2. Don't buy things on credit
Buying on credit, especially in bulk, could also leave you in high debt in times of uncertainty. If you deal in perishable goods for instance, in the event that you are unable to sell all your goods within a short period, they get spoiled and you lose out.
The creditor would still collect his money irrespective of whether you were able to dispense of your goods or not.
Non-perishable goods could also accumulate debts if the demand for them is reduced. The more it takes to sell the goods the more interest they accumulate if you bought them on credit.
3. Get a good Financial Manager
Get a good business and financial manager to take care of your funds. Your manager should be one who has the experience to run your enterprise in such a way as to guarantee you profits.
4. Plan well
Don’t be in a hurry to expand your business; make sure you are firmly established before thinking of setting up new branches. Otherwise the fund available for your use would be used to open up several quasi-branches that eventually end up all being unviable.
When that happens, you lose all the money you had used to open the various branches.
5. Regulate your purchases and sell less on credit
Make sure you are able to use your available money to buy the most basic needs of your business. Whereby your money is not enough to get all you require, you could also buy fairly used equipment to augment the basic ones; as you make more profit you get them replaced.
Selling your goods on credit could also leave you in debt as well. By the time you have sold most of your goods on credit and the debtors refuse to pay back on time, you are forced into getting money from banks or other financial institutions in order to continue to run your business.
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