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Melbourne (Capital Markets in Africa) – For many businesses, especially young or growing businesses, the proverbial question is not how to grow or succeed, but how to avoid taking on risky debt in order to do so. In the long and storied history of finance, the concept of debt is relatively new. Many of the world’s largest and most successful firms were those that generated or held the most debts from others. Morgan and Baring, like Rothschild or Medici before them, have become household names synonymous with wealth and power over their debtors.
Many more “developed” parts of the world have made debt a part of life. And while some in these societies rise to the top, most are plagued by their debts, never able to get ahead. Which is understandable, when instead of focusing on business they must work just to meet regular repayments. They no longer own the product of their work – their lender does.
Many borrowed to try to build their business; to make something small into something bigger. But they also took on debt for the bigger house they don’t need, or for the fancy things to fill it, like jewelry, cars, TVs, and computers. And when the water heater breaks, why not borrow for that, too?
Debt has become a way of life in many countries. But that doesn’t mean it should be the goal. There are those of us who want to keep control over ourselves. Yes, our businesses might be able to grow faster if we borrow to buy new equipment. And sure, we’d love to have that flashy new car or expensive wristwatch – but we’d be giving up so much more in exchange.
So, how exactly can we keep from going into debt? How can we remain our own masters? To start, following these suggestions will set us on the right path for remaining debt-free.
- Track every dollar: There is a reason the most successful companies have teams of accountants working around the clock. They know the importance of following every dollar, whether it’s coming in or going out. Knowing where money’s coming from and where it’s going keeps us aware of when revenues might slow down, but also when and how expenses might go up, which leads us to Point.
- Look into the future: One of the biggest reasons it’s important to track expenses is so we can project them into the future as accurately as possible. Does the cost of gas tend to go up for 3 months every year? Are sales in business much slower in some months than in others? These are things that help us prepare as much as possible for the inevitable surprise. When we’ve prepared, we know how much we need to keep in our “rainy day” fund to be able to meet these challenges.
- Keep expenses low: We don’t get any extra points for spending more than we need to. Rather, in many cases people are only trying to show off or make themselves feel important; or they just don’t know that they’re spending too much. Controlling expenses is one of the easiest ways to control our financial destiny – personally or in business.
- Stay disciplined: It only takes a few day’s work to compile records of income and expenses into an easy-to-use software program such as Quicken by Intuit, however, these steps only work if they are sustained over a long period of time. We have to get into the habit of keeping on top of these things, and we can’t let up. We can’t get frustrated or decide one day to spoil ourselves. Just remember – successful companies pay teams of people to track their money. Why? Because it’s important work.
- Invest the extra: As time goes on and reserves start to accumulate – funds that aren’t needed right away – it’s important to make sure to use these funds wisely. Keep some money easily-accessible to meet obligations and the occasional surprise, but deploy the rest in safe investments. Make sure to gauge investment opportunities for both risk of loss and liquidity – how quickly you can access your money if you run into an unforeseen financial problem.
We all wish that managing finances was an easier task; that we could simply enjoy success without having to worry about going into debt. The unfortunate fact is that there is a reason so few people are extraordinarily successful, and that is the amount of work required. In this world, there is plenty of success to go around; we can all survive and thrive – if we put in the work. Utilizing these strategies will help to increase our chances of being successful and not falling into debt.
Steven McMeechan is a strategic marketing and communications specialist with over twenty years’ experience in senior marketing management roles across a range of industries including Information Technology and Financial Services. He works for Capstone Financial Planning and lives in Melbourne Australia.