AB Financial Group is a firm of accounting and finance professionals who provide a wide range of services including debt management consultation and systems. Avoid overheated concern about business debt. AB Financial Group offers tips for successful management of business debt that ensure cooler heads.
Gather the Data
To manage debt, begin by creating a comprehensive financial picture. When a business has a professional accounting system in place, this data will be available at its fingertips. AB Financial Group partners with many companies to provide up-to-the-minute accounting data. Let us show you how.
The data should include the monthly cost of doing business; production, operations, facilities, staffing, marketing, etc., as well as the cost of credit. Once the picture is complete, take stock of the difference between revenue and cost, with a focus on the cost of debt. A debt ratio of 0.4 and lower is ideal. Up to 0.6 is okay, but viewed as higher risk which can affect financial standing and trigger a less favorable rating. Now, determine necessary steps to achieve the optimal debt ratio and healthy debt payment position. This is the goal of debt management.
A good strategy for debt management is restructuring existing debt. Renegotiating terms for loans, a longer time to pay a loan off, can reduce payment pressure. Loan consolidation is another option. Lenders can combine two or more loan instruments into a single payment. A careful analysis of the terms and conditions will protect the business from taking on too much real cost in order to lower monthly payment totals. You may reduce monthly cost, but adversely impact the debt ratio and credit worthiness in the process. When a company’s credit score allows, refinancing outstanding debt for more favorable terms may also be an option. AB Financial Group offers consultation for businesses considering a restructuring process.
Creative Discounts and Terms
Healthy monthly cash flow protects a healthy business debt ratio. Get creative in payment terms for both the customer base and the supply chain. Favorable terms for clients and vendors can boost monthly revenue.
- Consider offering clients a discount for an early payment.
- Arrange discounts with vendors with early or deferred payment terms that suit the type of transaction.
This type of partnering with business associates has potential for revenue. Communicating with customers and suppliers is always good for the bottom line, as you gather data on providing even better products and services. This creates a good will connection that is also likely to generate even more business and can improve monthly cash flow standing, which helps support debt ratio management.
Improve your debt ratio by increasing revenue. New customers bring new revenue. Consider cost-effective marketing to reach new customers. Boost your business’s visibility with a social media presence. Upgrade the business website for speed, ease of use, and search engine optimization (SEO) to increase visibility when customers search for your products and services. Create blog topics germane to your customer base, and add new content regularly. AB Financial Group has expertise in utilizing low-cost marketing techniques, and can partner with you to grow your customer base and increase revenue, which supports a favorable debt ratio.
Make Smart Cost Cuts
Be diligent of where and how you make operational cost reductions. Running a leaner business is always the goal, but not if it results in greater cost. Examples of reductions that can result in higher cost highlight the difficulty of choosing where and how to make cost cuts:
- Reduce amount of space for operations – Will it impact inventory supply on-hand such that it triggers higher cost for just-in-time deliveries?
- Reduce the workforce – Will the real cost of temporary or independent contractors result in cost savings, or higher cost?
- Reduce the marketing budget – Will you limit new growth and lose an expanding client base?
It is easy to see that cutting costs could be a simple subtraction problem that ultimately adds to cost. However, knowing one’s industry, supply chain and the market sector can elevate these decisions, making cost reductions effective. Often it is a process of trial and error for businesses, before beneficial reductions are apparent and effective.
Cost reduction decisions are complicated and potentially costly. When partnering with AB Financial Group, clients are in a position to benefit from the analytics and professional analysis we can provide. We have the expertise to facilitate the process to achieve optimal cost reductions that are sustainable over time.
Partner With a Debt Management Pro
Confidence and experience are the immediate benefits when partnering with a debt management professional. A CPA financial accounting firm like AB Financial Group, with our vast experience with the regulatory and legal requirements of business debt, can bring know-how and competence that business owners appreciate and expect from us. An objective professional perspective and operational partner brings clarity and strategy for all of the considerations of business and debt management.
Let’s partner with you for all of your accounting and finance requirements. Contact AB Financial Group. All Colorado locations, including Edwards, Denver and Colorado Springs can be reached at (970) 444-5586. Call today.