Today I’ll continue my tips for how to run your business debt free.  Check out Part 1 here.

2) Buy bargains.

Right now, stop justifying the top-shelf equipment, furniture, supplies, and services.  Every dollar you spend in your business is a dollar that doesn’t come home with you! Start searching out and buying bargains to keep your costs down.

I cannot tell you how many thousands of dollars we have kept in our pocket because we bought used, bought on sale, or bought cheaply and restored.  We’ve been buying used camera gear since the beginning; that alone has saved us thousands, and we’ve never bought a dud.  We buy furniture and other big purchases on sale, and I’m making upgrades to our computers so we can continue to use them longer.  Keeping your costs down will go a long way to helping you become or stay debt free.

3) Build your reserves.

The first thing you’ll realize when operating your business with cash is, I need more of it.  When you’ve committed to a debt-free business, the next step is to start building your cash reserves.  This will allow you to ride the ups and downs of each month without relying on credit to meet your financial obligations.  You have to stop thinking of “zero” as actual zero in your account, and instead of spending everything in there, let it build up on the bigger months.

For us, this means keeping a minimum of about three months of operating expenses in our business checking account.  We do this on top of our accounts receivable (the money we have  being between $10,000-50,000 for the next six months.  It sounds conservative, and it is.  We don’t want to have to make the choice between delaying payroll or going into debt, so we avoid that dilemma completely by maintaining big cash reserves.

4) Stop the cycle.

Once you have those cash reserves, you need to cut up the credit card, close the line of credit, or whatever else you need to do to stop making debt an option for you.  Building up the cash reserves allows you to do this free from [legitimate] fear of not having enough to handle the ebb and flow of business.  You might experience anxiety when you call to close that credit card account and take the scissors to it, but your fear is unfounded at that point!  You’ve done what you need to do to take the next step can stop the cycle of debt.

5) Pay off debt.

If you don’t have any debt, move on with #5.  If you do have some debt to clean up, focus a portion of your monthly profit during bigger months on paying that off at an accelerated rate.   It’s wise to go ahead and address this, because in most cases if your business is small or young, you are liable for your business’ debt.  It’s not your business’ debt; legally it’s yours!  But even better, when you get out from under it, you’ll have  more cash flow to bring home with you or invest back into growth.

6) Know your numbers.

Proper accounting can make all the difference.  How much are you going to spend to keep your business running the next few months?  What’s the minimum it takes to run the business?  Are you properly prepared for the additional expenses you might have?  What are your margins on your main product or service?  How much income do you have in an average month?  Knowing these numbers – or not – can make or break your ability to avoid cash flow problems and stay out of debt.

In general, an intentional focus on profitability will help towards these ends.  Income up, expenses down = profit.  More profit = fewer cash flow issues.  Our Business Budgeting Guide can help you plan for your expenses and manage your cash flow more effectively.

7) Ask for help.

Ask your spouse, mentor, or business partner to help hold you accountable towards your goal of running a debt-free business (or becoming debt-free).  Get a coach on board to help you see the path to debt freedom, or to help you figure out what it takes to stay debt free as your business grows.  Nancy and I were lucky because we had each other and the shared goal of a debt-free, profitable business.  It’s important you have someone to help you towards your goal!

Question: What are some other things that can help you run your business debt free?

Thanks to Nancy Ray for the featured image.