For most firms, a loan acquisition is necessary to grow, expand, or weather tough times. It can fuel innovation, purchase essential machinery, or plug working capital gaps. But after securing that money, the real challenge is how to integrate loan repayments into your existing financial system without impacting your day-to-day operations. Opting for easy loans with flexible repayment options can make this process smoother and reduce the strain on your cash flow.
Paying business loans and covering monthly operating costs is a high-wire balancing act that requires planning, self-control, action, and alert monitoring.
Failure at either has cataclysmic consequences – from vendor relations strife and employee dissatisfaction to credit rating damage and even business bankruptcy. How do you then balance this so perilously teetering?
Let’s examine the financial management strategies.
1. The Power of a Detailed Cash Flow Projection
A solid cash flow forecast is an excellent tool when you have yet to borrow and certainly when you have. It’s not just a matter of revenue and costs; it’s a precise prediction of money coming in and going out, including loan repayments. For unexpected shortfalls, quick loans can provide immediate financial support, ensuring your operations continue without disruption.
- Plan for the future: Project your cash flow for at least 6-12 months, ideally longer.
- Include seasonality: Does your company have a peak and an off-season? Your forecasts require that these fluctuations be captured.
- Include all the expenses: Don’t just count fixed expenses. Add variable expenses, unexpected repairs, marketing campaigns, and your loan repayment plan.
- Stress test: What if sales are 10% below? What if one of your biggest customers skips payment? Run through scenarios to observe your breaking points and build a buffer.
Having a vision of your future cash flow enables you to identify shortages well in advance so that you can act to correct them.
2. Prioritise and Categorise Expenses
All expenses are not the same. To manage your cash, you need to understand which expenditures are requirements and which are options.
- Fixed Costs: These are generally fixed costs regardless of sales volume (e.g., insurance, rent, salaries, loan repayment). Your loan repayment obviously falls into this category and must be given high priority.
- Variable Costs: These are directly dependent on your business activity (e.g., cost of production, raw materials, sales commission).
- Discretionary Costs: If the cash flow is tight, optional costs (e.g., special marketing promotions, non-essential improvements, lavish office conveniences) can be reduced or eliminated.
Categorising lets you immediately identify areas where you can reduce expenditure when cash flow is tight, so priority fixed costs, especially loan repayments, never have to be compromised.
3. Build a Cash Reserve (Your Financial Cushion)
This “rainy day fund” is essential to cushion against unexpected expenses or short-term drops in revenue so that they don’t compromise your loan repayment strategy.
- Target 3-6 months: Your cash buffer should be able to cover 3 to 6 months of your essential operating expenses, including loan repayments.
- Steer clear of impulse spending: It’s easy to spend that excess money, but a solid reserve gives invaluable peace of mind and financial stability.
4. Maximise Revenue Streams and Accounts Receivable
Although managing costs is critical, maximising income is equally important. Here are a few ways to maximise:
- Accelerate collections: Impose strict invoicing and collection practices. Issue invoices promptly, pursue overdue payments aggressively but politely, and provide early payment discounts.
- Diversify revenues: Can you create new products or services? Expand into other customer bases? Multiple revenue streams reduce reliance on a single one, producing a more sustainable aggregate cash flow.
- Check prices: Are your prices competitive and profitable?
5. Negotiate with Lenders and Vendors
Don’t bury your head in the sand when you see trouble brewing. Anticipatory communication will save your business.
- Communicate with your lender: If a near-term cash flow deficit impacts a loan repayment, call your lender. They may offer you options such as deferrals, interest-only periods, or loan restructuring, especially if you have a good payment history.
- Negotiate with suppliers: Talk to your suppliers about longer payment terms. A day or two difference can significantly affect managing your working capital.
6. Use Technology for Financial Tracking
Spreadsheets can do so much for you. Accounting software (like TallyPrime, Zoho Books, or QuickBooks) and financial management tools provide real-time information about your cash flow, expenses, and profitability.
- Automate reconciliation: Connect your bank accounts and credit cards with your software to easily keep track.
- Create reports: Monitor trends and issues regularly using profit and loss statements, balance sheets, and cash flow reports.
- Budgeting features: Leverage integrated budgeting tools to view actual expenditures compared to your budgeted plan.
The Balancing Act is Ongoing
Balancing loan repayments on business loans with operating expenses is not a short-term solution but an ongoing process. It requires ongoing review of your accounts, planning, and a well-disciplined cash management approach. By honing the tightrope balance act, you will get your loan repayments made and build a financially sound business that can sustain long-term growth.
