Being Your Own Boss 101 – Here’s What You Need to Know to Avoid Debt Problems
Ask anyone who operates as their own boss and you’ll likely hear stories of debt problems. Realistically, it costs money to make money in the world of business. Many new ventures start in the proverbial “red” with a solid plan to turn things around in the shortest possible time-frame.
A significant number of new business owners will encounter a snag or two in their business plan, some will not survive as long as others. Business debt is par for the course for a new entrepreneur. Unfortunately, debt problems can occur at any time during the life cycle of a business.
When debt becomes unmanageable, some businesses can’t bounce back. The level and type of debt that business owners face can grow rapidly with interest and penalty charges. During 2017 alone there were 2,700 business bankruptcies filed in Canada.
Here are a few tips to help you avoid the serious debt problems that lead many business owners to prematurely close up shop:
Avoid Tax Debt Problems
Avoiding problems with tax debt begins with how you set up your business. Seek help from an accountant before setting up tax accounts, incorporating, or registering a partnership. Tax professionals will know what the best fit is for your operating activities and this can save you time and money in the long run with Canada Revenue Agency.
Filing your taxes and paying what you owe on time is integral to maintaining a good relationship with CRA and operating your business in a way that will not result in any tax debt surprises.
Take Advantage of Alternative Financing Options
Many business owners visit their small business representative at the bank they use to seek funding when they are short on cash. When they are turned away because they don’t meet the lending rules they give up on finding a loan or borrow from a lender with high interest rates. Securing funds via an alternative method designed just to help with business cash flow may actually help you avoid debt problems later on. Seek out a corporate financing professional for advice.
Keep Good Books & Records
Common sense dictates that you can’t really run a business effectively if you aren’t keeping good books and records. Organization will help your business account for every cent you earn and all of the dollars you spend. A good filing system will also ensure that you don’t lose any important documents or tax deduction receipts.
Review Your Finances Regularly
With the great books that you are keeping, you should be able to access information to help you stay on top of your business. A regular review of your receipts and disbursements, you can spot inefficiencies and losses before they cost you too much. Saving money and knowing where to focus your spending will help you monitor inventory, determine where to spend your marketing dollars, and much more. Wherever your business is over-spending with little return on investment will become clearer. You may be able to improve your cash flow by tightening up and re-allocating money to a different expense.
If you’re self-employed and already struggling with debt problems, you may need to completely overhaul your personal and business finances. Sole proprietors can always file personal bankruptcy or a consumer proposal to wrap up business-related debt. Corporate business owners may have other options depending on the type of debt and amount owed. To learn more about your options please book a free consultation or call 310-4321.