Something I hear from food business owners is that they feel like they need to pay off their credit card bills in full every month, even if doing so is going to result in not having enough cash in the business to pay for operations… requiring them to continue using the credit card… eventually paying off all or a big chunk of the debt, and then being low on cash and having to rely on the card again.

We call this the DEBT CYCLE.

So what can you do to prevent this cycle and begin moving toward becoming a cash-based business?

Release the need to pay off your credit card(s) immediately, and Create a Plan.

Get clear on where you are financially right now, what is realistic in terms of servicing or paying down your debt, and create a plan to first stop utilizing the credit card for business purchases, and then for paying down the debit within a stated time frame.

Here are a few tips:

DETERMINE IF YOU HAVE ENOUGH MONEY TO COVER YOUR MONTHLY DEBT SERVICE PAYMENTS

We're talking about JUST the minimum payments you must make to keep your account(s) current.

Total them up and subtract the amount from your average monthly Income - is the amount of income remaining enough cash for you to cover your average monthly expenses?

If the answer is YES - make the monthly minimum payments and begin operating your business on a cash basis - not utilizing the credit card any further for the time being.

The Profit First strategy can be really helpful here - encouraging you to allocate or set aside a set percentage of your Income to Debt Service each month. The allocation should cover your minimum payments in your slow months, and then during your higher sales months will cover the minimum payment and then some, helping you to pay DOWN the debt - not just service it. This is the strategy that I use and recommend for my clients.

If the answer is NO, you DON’T have enough cash left to cover your operating expenses - you’ve got to identify where you can cut costs immediately, and then where you can create efficiencies to reduce costs further.

YES - growing sales can help, but that is an external factor and before focusing on that, it’s important to be sure the internal factors that you CAN control are taken care of.

Here are the STEPS TO REDUCE SPENDING SO YOU CAN COVER YOUR MONTHLY DEBT PAYMENTS:

1. Identify What you DON’T NEED to operate successfully and eliminate the expense.
   Music subscriptions, subscriptions to tools or services you don’t use, memberships, etc.

2. Review your subscriptions and the service level for each.
   Where are you paying for more than you need or more than you’re actually utilizing? Lower your subscription level to cut costs. I usually review this quarterly as so much can change in just 3 months!

3. Take a deeper dive into your business and identify WHERE you may focus your attention to improve physical and financial efficiencies.
   

I talk a lot about the Profit Assessment because it is a GREAT tool for seeing your business finances in a new light and determining what area of your business is not working FOR YOU.

For example, your COGS may be high and limiting the amount of cash you have in your business. Maybe your Gross Profit aka Real Revenue is great, but your Labor Costs are high -- this is insightful information to help you take action and become more financially sustainable.

Financial sustainability doesn’t happen overnight, but with consistent action in the right parts of your business you’ll get there.
And when you’ve got the trifecta -- controlled costs, financial efficiency AND growing sales, you are surely on your way to operational profitability, business profitability and paying down your debt!

Lastly, for those of you implementing Profit First in Your Food Business, Each quarter take 99% of the funds in your Profit Account and use it to pay down your debt. That last 1% is for you! No matter what it amounts to, enjoy it!

When your debt is paid off, the profit account goes from being a debt-busting tool to a the source of your quarterly dividend.

About the Author: Sarah Delevan is a Food Business Financial Coach and Consultant with over 7 years of working in the food industry. She received her MBA from Rollins College and In 2017 she founded Sarah Delevan Consulting based in Los Angeles, CA and serving clients across the United States. She is the creator of the Financial Success Formula and the founder of the Profitable Food Business program as well as the host of The Good Food CFO Podcast. To learn more about Sarah and opportunities to grow a more profitable food business Click Here.