Entrepreneurs: 3 Ways to Keeping Debt Under Control

Entrepreneurs: 3 Ways to Keeping Debt Under Control

Managing debt is a challenge for any business, but it can be particularly tough for women-owned businesses. The number of women-owned businesses that experience financial challenges in their first year of operation is 64 percent, compared to 58 percent for male-owned companies, according to Federal Reserve data. Financing and debt management issues play a role in the financial struggles of women-owned companies. Women business owners are less likely to apply for or receive loans than men, and more likely to be $100,000 or more in debt. When women do receive business loans, they are more likely than men to use personal guarantees as collateral, running a higher risk of compromising their personal finances.

To avoid running into financial problems when running your business, it’s important to have a viable debt management plan. Here are three strategies you can use to keep your debt manageable when running your business.

Build Debt Ceilings into Your Budget

A key to successfully managing your business debt is creating a budget that only allocates expenditures that will be covered by incoming cash flow, says CPA Steven Bragg on his accounting tools blog. To do this, start by estimating your annual revenue, using your most recent revenue data as a baseline and adjusting projections based on anticipated changes. Then estimate your expenses, including payroll, cost of goods sold, and administrative expenses. You will then be able to see how much of your expenses you can cover with your projected cash flow.

To keep your expenses within a manageable range, you can build debt ceilings into your budget by allocating a percentage of your revenue to each expense category. For instance, for most businesses, payroll is the biggest expense category, with costs of salaries and benefits totaling anywhere from 40 to 80 percent of gross revenue. Subtract your payroll costs from 100 percent of your revenue to estimate what you have left available for other expense categories. To take another example, the average business spends 4 to 6 percent of revenue on IT.

One particularly important expense category to build into your budget is marketing. The amount you spend on marketing is directly proportional to your sales and revenue, so make sure you allocate enough to marketing to generate the revenue levels you’re aiming for. Small businesses typically spend about 10 percent of their revenue on marketing, according to Gartner research.

Use Debt Minimization Strategies

To keep your expenses within your budgetary means, financial guru Dave Ramsey recommends using proven strategies to minimize your business costs and debt. One effective way to keep your payroll costs down is outsourcing tasks that don’t need to be done in-house, such as accounting, IT, and content marketing. Ramsey also recommends renting equipment or buying used equipment instead of paying full price for new items. When you make purchases, Ramsey advocates paying in cash rather than using credit or loans whenever possible.

Another way to minimize debt is by leveraging the resources of established partners. For instance, Amway provides its Independent Business Owners with quality health, beauty, and home care products, as well as marketing materials and sales training, significantly reducing costs such as product development and market research.

Joining forces with a promotional partner is another example of a way to reduce your operating costs. For instance, if you can persuade a partner to promote you to their social media following or email list in exchange for a percentage of the profits they help you generate, you can reach your partner’s customer base for a fraction of what it would cost you to acquire their customers through your own marketing efforts.

Explore Alternative Financing Methods

Leveraging financing alternatives is another key to keeping your business debt low. One alternative to traditional business loans is bootstrapping. This is a type of financing arrangement where you secure short-term credit on the strength of anticipated sales revenue. For instance, if you anticipate you can sell the items in a shipment within a 30-day time period, you might be able to persuade a supplier to extend you trade credit for 60 days, giving you enough time to pay them back from sales you make during that time. Another method of bootstrapping is factoring, where a commercial finance company agrees to buy your receivables in order to provide you with the capital necessary to make your sales. Bootstrapping can work well if your product has a fast sales cycle or if your company serves a middle role in a supply chain. However, it does carry some risk if you are unable to make your anticipated sales, so plan your marketing and sales carefully if you plan to use bootstrapping strategies.

Another alternative financing strategy is revenue-based financing. Here you make an agreement with a creditor to repay their loan out of the revenue you generate from using it. For instance, Lighter Capital lends companies up to a third of their annual revenue, with repayment amounts due based on monthly sales. To obtain this type of financing, you need a consistent revenue stream, and a good business and personal credit rating will also improve your odds.

Maintaining a good credit rating will boost your ability to obtain traditional loans, lines of credit, venture capital, and other types of financing as well. To develop a good business credit rating, pay your suppliers and creditors on time, apply for a business credit card, and maintain good personal credit by keeping your balances within 20 percent of their limits and paying your bills on time.


Building debt ceilings into your business budget will help you keep your expenses proportionate to your revenue. Using debt minimization strategies will keep your debt low by reducing the amount your business spends. Alternative financing methods such as bootstrapping and revenue-based financing can allow you to finance your operations out of your short-term revenue instead of taking on long-term debt. Employing these types of strategies can help keep your debt down so that your business stays profitable.

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  1. Jen Rodrigues July 10, 2018
  2. Beth Minyard July 13, 2018
  3. Tara Liebing July 17, 2018

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