November 2007 Business Tips
DON'T LET DEBT HOLD YOU BACK!
I was in the gym the other afternoon, slogging out some interval training on the bike; I’ve taken up competitive running rather late in life and so afternoons at the gym are not unusual.
This time though, it was the advertising on the TV that got my pulse racing long before the exertion did. I don’t usually look at the TV but do find the ads amusing.
This time though, I was horrified. Viewers were being encouraged to roll all their credit card and other debts into one large debt secured against their home. This of course represents good debt management practice, because secured loans are usually at a lower interest rate and so you find your total monthly repayments fall.
The bit that got me going was the narrator’s invitation to think about all the nice things you could do with the money you save by reducing your monthly debt repayments. Surely if you take a consolidation loan to escape from debt it would be nice to use the monthly saving more wisely. For one thing you could use it to pay off the loan quicker, or even start saving for the proverbial rainy day.
Now starting a small business puts real pressure on your finances so I began to wonder how many of you reading this are also worried about your debt? It’s been estimated that six million families are concerned about their debts in the UK today so you may well be one of them.
When you leave paid employment to start a business, your income inevitably falls and you have to make a few economies. The fortunate few have redundancy cheques to tide them over, but for those who volunteer there’s no such safety net. Slip off the rope and you’ll go splat on the floor!
Furthermore, it’s likely that an inability to fund your lifestyle from paid employment has encouraged you to go it alone. Long term, this is probably a smart move, not least because you’re in control. In those first few months however, reality might be very different.
The mistake we all make when we start out as entrepreneurs is that we set sales targets that are simply too ambitious. It always takes longer than you expect for those first orders to come in and sales growth almost always lags behind our business plan forecast. That inevitably upsets your personal cash flow as the money’s not there to take out of the business.
So how can you soften this blow to what might already be a pressured home financial situation? Well I’d avoid falling into the clutches of a debt consolidation company. They often charge over the odds and build various fees and expenses into the consolidated debt. That’s how they can afford to advertise on daytime TV!
If you’re finding it tough to keep body and soul together, here are five simple ways to limit the damage that personal debt can inflict on your new emerging enterprise.
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Check the figures – The credit card company I use wrote to me to say that they’re now charging an annual interest rate of 27.9%. That more than five times the annual interest rate charged on my mortgage!
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Set priorities – You need to eat, have a phone and other basics. Make sure you cover the essentials first.
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Keep talking – Almost without exception, people owed money are much more helpful if you’re keeping them up to date with your situation. It’s when they hear nothing they start getting nasty!
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Avoid damaging your credit record – Defaults of mortgages and Court judgements show up on credit reference searches. If you’re pitching for work with the public sector or in fact any discerning organisations, they’ll check you out and might be put off.
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Be creative – I’ll get hammered for saying this, but business debts are often the easiest to re-negotiate. This is because you’re dealing with someone who wants you to succeed and buy more from them. Credit card companies are usually less understanding!
Of course the best solution to debt is not to borrow more than you can realistically afford to pay back. We all get caught out from time to time though, especially when starting a business.
If debt is holding you back, be creative, be communicative and be cautious. Above all else, remember that you’re not alone!
Robert Ashton’s best selling ‘The Entrepreneur’s Book of Checklists’ is now out in second edition. Buy your copy from Amazon or any good bookshop. You can also buy a signed copy from Robert who is an entrepreneur as well as a business author at
www.robertashton.co.uk© Robert Ashton 2007
