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How to Manage Debt Efficiently

Don’t let 2012’s debts put a damper on 2013’s success.

Janice Damian

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Did 2012 see you completely blowing the business budget or getting into arrears with repayments?  If so, the five tips bellow will help you to put a smile on your accountant’s face during 2013. Simply follow these five comprehensive tips to learn how to manage your company’s debt more efficiently, pay off those urgent bills and have a little extra cash in your pocket for the future.

1) Get organised…

If your financial affairs seem as tangled as a ball of yarn, now is the time to get organised.  Organisation is the key to managing both personal and business debts, so, dive in at the deep end today and create a spreadsheet highlighting all the different debts you owe, along with vital information such as amount, payee, minimum payment amount, due date and current maturity date.

Alongside, make a similar table populated with your cash flow, include invoices you’re owed, when they’ll be paid and then list any other money you can get access to and the date it’s available.  This will help you see in black and white what you can afford to pay off and when.

Look at everything you owe and start by paying off the debt with the highest interest rates first.

2) Make your clients pay up!

Now is not the time to suffer fools gladly, you need every penny you can get to pay off your debts.  Track down all your clients with outstanding invoices and ask them to pay what they owe you, and quickly!

To help improve future cash flow, start putting a deadline on your invoices and tell clients you’ll add on fees for ‘admin’ if they don’t pay within the set date.

If the client is still not paying:

If you’re worrying about hefty lawyers’ fees for chasing overdue or disputed payments, don’t!  As this article shows, there are plenty of low cost ways to get back what you’re owed, including mediation, collection agencies and more.

3) Reduce expenses to help improve cash flow…

Reducing overheads in your business will help to improve cash flow in the future, handy for paying upcoming bills.

Put any additional leftover cash towards debt repayments to reduce the amount of interest you’ll be paying on your loan or credit.

How:  It’s simple:  call suppliers to work out which company can provide the cheapest services for your business and consider switching.  Review utilities, Internet packages, mobile phone contracts, insurance agreements and courier services for starters!

You should also aim to find other innovative ways to reduce you expenses and raise money to pay off debt.  Here are a few ideas:

  • Limit staff usage of resources like paper and ink: Urge the office to go paperless and enforce staff to request management permission before printing documents.  This should save costs in the long run and stop people using the company-bought resources for personal use!
  • Reduce energy costs: Employ energy saving techniques such as switching off unused equipment and sealing up drafty windows to ensure bills are lower over time.
  • If possible, allow staff to work from home one day a week: A day with lots of staff out of the office means less air conditioning, electricity and resources being used.
  • Space at a premium, can’t afford to relocate? “Hot-desking” is very useful if you have more staff than space!  It’s worth trying for a few months before renting more office space.
  • Curb business travel expenses:  Allow only necessary travel through the business and tell staff there’ll be no work-funded conference trips this year.  If staff must travel, limit them to booking the cheapest flight & hotel packages available.
  • Look for cheaper office space: Do you need all the space you have? Could you downsize or find similar space for less cost elsewhere for a lower monthly rent?  It might be worth thinking about.
  • Barter with other companies and trade your goods or services: This one is pretty self-explanatory.  Make partnerships with others and offer them your services, for free, in exchange for theirs!

4) Invent new chargeable services:

When the going gets tough, the tough get thinking of new ways to make quick cash!

If you have a loyal customer base but you really need to earn some cash quickly to pay off debts, think about charging additional fees for new services that you haven’t previously offered and offer them to clients as an upsell.  They need to add value to the business, but can include anything from paid priority support to one-on-one tuition or installation and set up of a new product.

5) Take out a loan

Some companies are dedicated to offering short-term business loans to help to bridge the cash gap in-between invoice payments.  These are ideal if you need to pay a contractor or a utility bill, but you’re waiting on a big invoice to be paid from a client.

These companies tend to provide cash quickly and easily.  You decide how much you will need and how long you require (usually a couple of days or weeks) then you will repay the loan once that nice fat cheque comes in!

For more information on managing debt, Wonga South Africa provides a comprehensive resource and free downloadable quick borrowing guide.

Janice Damian, MBA in finance, is an independent financial consultant based off of Cape Town and specializing in cash flow management. She is also a freelance financial writer whose work has been featured in numerous financial journals.

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Cash Flow

Entrepreneurial Balancing Acts with Debt

Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders.

Harald Merckel

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Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders. Unfortunately, many South African entrepreneurs are limited in their ability to access capital markets. Among others, the major challenges facing entrepreneurs include lack of credit history, no collateral, shaky credentials, and unformulated business plans.

Regardless, SA entrepreneurs are forging ahead and using multiple resources at their disposal such as payday loan providers, non-bank lenders, family and friends, crowdfunding and other economic empowerment initiatives to raise the necessary seed capital for investment purposes. Given the staggering unemployment rate in the country (+25%), the only way out for many people appears to be entrepreneurship. The 2008 global financial crisis threw the economy for a loop, and now the hopes and dreams of many South Africans hang in the balance.

Related: Every Tough Choice Has Management Debt – Are You Accounting For Yours?

ISM Study Sheds Light on SA Entrepreneurial Pros and Cons

An intensive study conducted by the University of Cape Town’s Unilever Institute of Strategic Marketing (ISM) found that the country is experiencing ‘a crisis of aspiration’. Simply put, many South Africans are struggling to attain their career objectives in an economy that has been ravaged by corruption, mismanagement, and scandal. Despite tough economic times, South African entrepreneurs are determined to try their luck. Pressing challenges in the form of rising unemployment, and an economy mired in failure are challenging entrepreneurs to be more inventive than ever before. The most volatile component of the economic spectrum in South Africa is the middle class.

Many South African families have lived the high life, or ascended the rungs and then been knocked down a peg. This instability is creating added volatility in a country where high crime, mismanagement and political rancour pepper the scene. For many entrepreneurs, any access to credit is a godsend. Banks and non-bank providers offering personal loans, business loans, or credit card funds invariably expose themselves to debt default. For entrepreneurs, it’s important to know where to draw the line. Access to lines of credit in a crippled economy is significantly more valuable than the equivalent access in a developed economy.

How to Know when you are Overstretched as an Entrepreneur

Debt is considered a prerequisite for investment purposes. Most South Africans simply don’t have the necessary capital to start up a high-tech venture, fund a new business, or conduct marketing and advertising activity. As such, lines of credit are increasingly being used to propel business activity among SMEs – both in the formal and the informal sector. However, once debt reaches untenable levels, the tough questions need to be asked. For example, if multiple loans and multiple payments are required monthly, revenue streams need to be evaluated against expenses to gauge whether this is a feasible status quo.

Related: How To Handle Your Post-Holiday Debt

Many entrepreneurs find it difficult to manage multiple loans simultaneously, although it is necessary to acquire the capital from multiple sources. One of the ways to deal with these types of exigencies is a single loan from a low-cost lender in the form of debt consolidation loans. Simply put, these loans are provided by bank or non-bank lenders at lower interest rates than the prevailing interest rate on other lines of credit. By taking out a debt consolidation loan, the entrepreneur has more disposable income over time by not paying the higher interest on credit card debt.

Escape Debt Before Debt Consumes You

There are several other ways to know when your personal financial situation has reached critical mass. For starters, the nature of your business may require you to continue dipping into lines of credit to maintain business operations. If you don’t have the requisite discipline to stop indebting yourself, you may not be able to get out of debt. Debt consolidation is only effective insofar as you have the necessary discipline to put an end to debt financing of all business-related activity.

Credit should be used sparingly, and profits should be generated to allow your business to prosper. In a tight economic climate, costs are the bugbear that need to be attacked. Lavish trappings are unnecessary for business functionality – modest budgets, and high-quality goods and services are far more effective than window dressing at a premium.

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Cash Flow

How South Africa’s Small Businesses Plan To Invest Their Money In 2018

Here are their five areas they should focus their attention on in the next year and beyond.

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Despite economic uncertainty, South Africa’s small businesses are positive about the future. In fact, our State of South African Small Business report reveals that 40% of small businesses are expecting to grow. However, to achieve growth without overextending their limited resources, small businesses need to invest wisely.

Here are their five areas they should focus their attention on in the next year and beyond.

Marketing

When times are tight, companies typically reduce their marketing spend. This isn’t the case for 36% of South Africa’s small businesses. These respondents recognise marketing as a critical investment area.

They’d rather make a concerted effort to grow their customer base, than sit still and do nothing as consumer demand declines.

Related: What To Consider When Investing Your (Hard-Earned) Money

Technology

Without access to the latest technology, business growth can quickly stagnate. This is why 23% of South Africa’s small businesses plan to invest in up to date equipment, whether that be new machinery, mobile devices or computers.

The right investment in this area can give a business a real competitive advantage.

It can help boost profits and improve operational efficiency – both of which can help a small business withstand difficult economic conditions with greater success.

Product development

Consumers are spoiled for choice. Their needs are constantly changing and companies can’t afford to become complacent. To keep up with market demands, 22% of small businesses plan to invest in product development. Barring a few timeless classics, most products need a regular review and tweak to stay relevant and popular.

Technology

technology-south-africa

Digitisation is transforming business functions across the board. Technologies, like cloud software can take care of laborious administrative work.

Related: How To Make Money Investing, According To Ashton Kutcher

This liberates employees from time-consuming tasks, enabling them to focus on more strategic work like customer retention and acquisition.

Technology has the power to improve productivity and efficiency. Which is why 18% of small businesses are going to focus their investment plans on this area of their businesses.

Customer service

The customer should always be the priority. It doesn’t matter how good a product is, if there are no customers, then there’s no business. As competition increases, the user experience becomes more and more important to win over customers.

Business growth depends on happy customers and to achieve that, 18% of small businesses plan to invest in delivering better service.

All five of the above business areas are worthy investment focuses. The question is, how does a small business work out what to invest where? The only way it can invest effectively is with a full view of its company finances. A small business needs to be able to see which functions have provided the best return on investment to date.

Related: 12 Millionaire Habits To Start Making Serious Money Soon And Build Wealth In A Hurry

It also needs to consider how much investment capital it has to spend. What’s more, before it makes an investment in say, marketing or product development, it must know exactly how and where the money needs to go.

The right software can help a small business access the real-time insights it needs to make better, faster financial decisions. To combat increased competition and market uncertainty, South Africa’s small business owners need access to up-to-the minute information from any device no matter where they are. An informed investment has the greatest chance of success.

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Cash Flow

The Simple Way To Pay Wages When Your Staff Don’t Have Bank Accounts

If you have employed casual workers over the busy season, you can pay wages even if they do not have bank accounts.

Absa

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At Absa Business Banking, the things that are important to you are just as important to us. We understand your business needs, which is why we have developed tailored solutions to help you where it counts. Take CashSend Plus, for example. It is a payment solution that enables you to pay workers even if they do not have bank accounts.

Related: Hiring Your First Employee? 5 Things You Need To Know

It is safe and secure

Your employee will receive a six-digit access code and a ten-digit reference number, so that they can verify the transaction. The money is instantly available at an Absa ATM.

You can even pay yourself

We have all lost bank cards or wallets at some point in our lives. What an inconvenience. Well, it is good to know then that you can access cash by sending it to yourself. Now, that is what we call better. 

Related: How Salary Transparency Empowers Employees – And When Not To Use It

Interested?

Please speak to one of our consultants or call 0860 111 123 or visit your nearest branch.

Absa Business Banking 

Do better business. Prosper.

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