5 Tips to Keep Your Debt-to-Equity Ratio Positive

By definition, business capital has two forms, which are debt and equity. The key for successful business is keeping the ratio between the two in order. The problem is that it’s only easy to say, but not to accomplish. 

Basically, debt-to-equity ratio is an indicator of how able a company is to pay its obligations. If debt is higher than equity, the company is financed by the creditors, which is a trend that usually ends badly for the company. That is why it is crucial to reverse the ratio and improve the cash flow.

Keeping the money coming your way is the primary objective of every entrepreneur, so here are a few tips on how to make this possible.

1. Grow Your Assets, Together With Your Sales

When your sales start to grow, you need to start growing your business capital as well. By growing the assets like the inventory or software simultaneously with the sales, you make sure your company grows.

This is a wise choice not only because it will make your company bigger, but also because it will make your debt-to-equity ratio remain intact. If your sales grow unevenly with your assets, it will have a negative impact on your debt-to-equity ratio, which may result in lenders refusing to further loan you money.  

2. Get Rid of Unnecessary Expenditure

Most people have much more money than they realize. The key is keeping control of that money and not let it get spent on superfluous things. The key to achieve this is in planning. By setting up both a long-term and a short-term budget, you can make sure that your finances get in order. Believe it or not, but a simple thing like budgeting can prove to be the key to getting out of debt.   

3. Take Advantage of Modern Tools

It’s 21st century and there’s no use to do the business the old-fashioned way. Not only will it slow you down, it will also reduce your chances to success in this business climate. Switching to e-Commerce should be your first goal, together with getting the apps and programs that can help you do your business more smoothly. The good news is that there are lots of free accounting programs out there, together with debt calculators, payroll management software, billing tools, etc.

4. Achieve Your Goals One-by-One

Your goal as an entrepreneur is to grow your business, but there are some things that are holding you down. One of the biggest problems, of course, is the money. Even if you start making quite a lot of it, your initial debts will still be there to take that money from you. That is why it is crucial to deal with those issues first.  Make one of your first business goals getting rid of a certain debt.

5. Getting to Know Your Debts

Sometimes debts are not your biggest problem. In fact, some loans are made at very favorable conditions, so that paying them off would not be a good thing. The whole point of loans is not to make you a slave of the bank, but to help you develop your business. The key is realizing which loans are favorable and which are bad for your company.

Written by Jefanie Genilla

Jef is a storyteller, educator and digital marketing enthusiast and she travels for self-discovery, fun and community service. She writes for Loansolutions as part of her financial literacy advocacy. Jef strongly believes that it’s not necessary to be rich to travel. One just needs to manage time and money the right way and make informed financial decisions.

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