As SaaS startups strive to win market share, debt can be a powerful asset for fueling growth. Though acquiring and managing debt can be a risky endeavor, structured planning and tracking goes a long way to help founders minimize those risks.
Use the following tips to manage startup debt and maintain fiscal stability.
1. Set up a comprehensive debt spreadsheet
This is the cornerstone of effective debt management. A well-organized spreadsheet provides a snapshot of your startup's outstanding debts, including details such as interest rates, repayment schedules, and total amounts owed.
2. Track your business growth
Regularly tracking revenue and cash flow enables you to assess your startup's financial health and maintain adequate runway. By monitoring growth patterns and financial projections, you can make informed choices on when to seek additional financing or other startup capital.
3. Budget thoughtfully
A well-structured budget serves as a roadmap, helping you allocate resources efficiently, identify potential areas of overspending, and ensure that debt repayment remains a prioritized expense.
4. Cut costs
Analyze your startup's expenses critically and identify areas where cost reductions are necessary. Redirecting these savings toward debt repayment helps reduce cash burn, increase gross margin, and strengthen your startup's financial health.
5. Craft a repayment plan
By committing to a more accelerated repayment plan for term loans, startups can free up resources sooner for growth initiatives and reduce overall interest costs. You might also consider revenue-based financing, which offers flexible payments based on future revenues.
Steer Clear of Bad Debt
Though debt funding has distinct advantages, it can be tough to outmaneuver a bad debt deal that doesn't align with what your business needs or adds unnecessary risk.
For example, taking on short-term debt to fund hiring a sales team could get you into hot water — you'll likely need to pay back the loan plus interest before your new team is ready to start selling, much less closing new business deals. If you have to pay back the loan in full before you start seeing a return on your capital investment, you're likely to have a costly cash flow crisis on your hands.
Before you take on debt, it's wise to compare offers, lenders, and review all the terms and conditions to ensure you have the right loan to help you achieve your business goals.
Shopping for debt? Don't make a deal until you've read our buyer's guide.
Explore the ins and outs of debt financing so you can avoid tricky terms and conditions that might hold your startup back.
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