Hedging Against Business Debt

There is one problem that threatens all businesses: debt. In 2010, businesses nationwide placed $150 billion worth of debt with collection agencies. To keep financially fit and withstand economic storms, a proactive approach to business debt management can hedge against accumulation of high debt that can often hamper growth and potentially lead to bankruptcy.

Knowledge Is Power
Knowing your company’s commercial credit score is an easy way to keep your business financially healthy. Get your credit score at least twice a year to stay on top of credit reporting and spending habits. Among small businesses, credit cards are the second most commonly used financial product, only second to checking accounts, according to a “Report to the Congress on the Use of Credit Cards by Small Businesses and the Credit Card Market for Small Businesses in May 2010.” With businesses today so reliant on credit cards, maintaining a high credit score can help your business better qualify for new credit.

A Good Credit Score Should Be a Priority
Like personal credit reports, credit card balances and payment history can affect business credit. Business credit reports are similar to personal scores and supplied by the same outlets that provide personal credit reports, Experian, Equifax, and TransUnion. Similar criteria used for personal credit are used for determining commercial credit scores, which include credit history, public records and business demographic. Commercial credit scores reflect transactions and credit inquiries from both your business and personal credit score/report, especially in cases of sole ownership. For small business owners, personal credit becomes just as important as business credit. Paying bills on time and avoiding overspending can prevent risk of bad credit and reduction of credit availability. Since small business owners typically have to personally guarantee credit for their businesses, a clean and high personal credit score should always be a priority.

Cash Is King
While companies are frequently using credit cards to support businesses, cash is always king, especially with credit today becoming more costly and difficult to secure. A cash flow analysis and responsible savings plan can ensure cash availability during difficult times. While a conservative estimate for personal cash on hand is typically six to nine months of living expenses, businesses usually need more than this to ensure availability of funds when times are lean. There is nothing worse than the feeling of desperation in trying to find cash or credit when income is down. Having cash readily available allows you to pay bills and avoid business interruption during crisis while researching loan solutions for business related credit issues.

Be on Top of Your Game
Being aware of industry standards and trends related to credit and collections is also key. Even if your business does not need credit for at least six months to a year, learning the application criteria in advance can mean not only better preparation for business operations and finance, but less risk of disruption during difficult times. All too often business owners wait until they need the loan or credit before applying, only to learn that they do not qualify. This can have severe repercussions for a business that is limited on funds, yet suddenly needs to order additional parts and inventory or is in need of hiring additional staff for a large project. Be proactive instead of reactive by going to the credit grantors ahead of time to learn about their terms or conditions. This can help ensure all credit requirements are adequately met when the time comes.

Stay Top of Mind
Sustaining good business relationships is another effective way to keep your business afloat. We all want our business associates to think of us whenever they have a problem that our services are suited to address. Stay on the minds of your business partners and clients by communicating with them and reminding them of the services you have to offer. Remain on the radar by regularly doing lunch and sending them monthly newsletters, emails or LinkedIn messages. Even if your message is deleted without being read, you have captivated their attention once again, which could follow with a referral or new synergy.

Networking events are especially important today for maintaining and building business relationships, which can essentially produce more cash flow. When networking, always remember that you are trying to establish synergies with companies that are beneficial and complementary to your business. Establish and build relationships with other businesses within your industry that are more supportive rather than direct competition. By finding companies that can refer new business your way or provide supportive services, you build a symbiotic referral based network that can be of mutual benefit and gain for all parties in the long haul.

While much has changed for all businesses as of late financially, a proactive approach in keeping on top of credit trends, business relationships and cash flow remains paramount and can make all the difference between businesses that thrive and those that don’t survive.

Leslie H. Tayne, Esq. is the founder and managing director of The Law Offices of Leslie H. Tayne P.C., a law firm dedicated to debt management, debt resolution and bankruptcy avoidance that is based in Melville, NY, White Plains, NY and Mount Kisco, NY. She can be reached at admin@attorney-newyork.com.

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