February 10, 2020
How to Use Bill Prioritization To Manage Small Business Debt
According to one study, 82 percent of small businesses fail due to poor cash flow management. It doesn’t have to be this way for your business, though!
As a business owner, you can avoid some of the most common cash flow problems simply by using bill prioritization. In this post, we'll explain which bills you should prioritize. That way, you can ensure that debt payoff doesn't keep you from achieving your business's financial goals!
Managing Debt In Business is Overwhelming
Surprisingly, many business owners don't fully understand how to get out of debt and prioritize their payments. Taking on certain types of debt can help your business in the long-term. Certain types of debt can help you increase cash flow and make important investments. But just like with consumer debt, businesses can overextend themselves and get into trouble. If a cash flow crisis arises, you must determine how you’ll manage your most important payments. Of course, all of your debt is important, but certain payments come with more urgent consequences than others. This is where bill prioritization can save your business. Knowing which payments are most important will help you stay on track and do what’s best for the company.How To Prioritize Your Bills To Best Manage Debt
Understanding how to prioritize your bill payments will make it easier for you to stay calm and handle the situation promptly. Doing this will make it easier for you to manage your debt in sizeable chunks. The right plan will depend on your business, but listed below are some general guidelines how you should prioritize your bills.1. Taxes Owed To The IRS
Your federal, state, and income taxes should always take precedence over all other bills. That’s because technically, this money doesn’t belong to your business. Neglecting to pay your taxes in a timely manner could result in fines and penalties. Plus, the IRS has the power to garnish your wages and make life challenging for you as a business owner. It's also important to note that failure to follow employment tax laws could result in civil and criminal penalties.2. Payroll For Your Employees
Once you have your quarterly taxes covered, ensure that you have enough money to cover payroll every month. Your employees are the lifeblood of your business and without them, it can’t operate properly. In addition, it'll be difficult to retain quality employees if you struggle to make payroll every month. Regardless of how much people enjoy their roles, they’ll find a new job if you don't pay them on-time. If you’re struggling to meet payroll every month, you may need to consider how many people you have on staff. Restructuring your company could make it easier for you to meet your financial obligations.3. Overdue Bill Payments
Once a bill becomes overdue by more than 60 days, you’re at risk for being sent to collections. And once a bill is sent to collections, it'll be reported to the major credit bureaus. Your payments make up 35 percent of your FICO score, so being sent to collections will lower your credit score. Having a low credit score could damage your business’ reputation, making it harder for you to secure future business financing.4. Operational Costs
Take a minute to consider the expenses that allow your business to remain operational. If you own a brick-and-mortar business, this probably includes costs such as rent, utilities, and internet. If you stop making the minimum payments, you risk having these services shut off. Due to this, making these payments every month should be a top priority. If you’re already overdue on operational expenses, your best bet is to contact your provider and ask for an extension.5. Major Suppliers and Vendors
You have a mutually beneficial relationship with your suppliers and vendors. Each party depends on the other for their businesses to continue to run smoothly. Therefore, it’s important that you work to maintain a positive relationship with each one. If you’re unable to make a payment to one of your suppliers, this doesn’t have to damage the relationship. The important thing is to talk to them immediately and explain this situation. Most vendors are willing to arrange a payment schedule if you’re upfront with them about what’s going on.