In my last post — “Getting your Business Out of Debt, ‘No I don’t want fries with that‘” — I covered STEP ONE for a business that’s in more debt than is comfortable, coming into the recovery.
STEP ONE: Be sure to know your debt situation
STEP TWO: Be cautious as revenue improves.
It is likely you have a long list of ways to spend the extra revenue that is finally coming in:
- rehire employees
- restore hours and benefits to current employees
- launch a marketing campaign
- increase inventory levels
- replace aging equipment
- pay yourself (more or at all)
Now, add improving liquidity and paying down debt to that list. In fact, it is a great idea to make it a written list. Get it out of your head and onto paper.
Once it is in writing, prioritize. Then, as you feel you can finally spend some money, refer to the list.
How to decide what is first in priority:
- What did you promise? If you told your employees you could restore their hours as soon as daily receipts returned to XXX, do it.
- What shows? A marketing campaign is more visible, and perhaps more effective, than replacing equipment. Just be sure that equipment is not on its last legs.
- What offers protection? A cash cushion and some room to borrow offers a safety net.
- What might pay off? Increasing inventory before your competitors may give you opportunities to grab market share.
Wants vs. Needs
What do you need? With every expenditure decision, be sure you are not caving to wants instead of needs. When you are doing well, you can get back to wants.
In the next blog-post:
STEP THREE: Don’t (necessarily) pay down the debt