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How to organize your company's finances and get out of the red?

Finance / Date: 01-25-2025

Knowing how to organize your company's finances is essential to prevent it from going into the red and acquiring debts that could harm its financial health . In some cases, these debts can even make the business unviable.

That's why it's so important to always keep an eye on your finances, control your cash flow well and always make decisions based on data, especially when they involve expenses.

But if your company is already in debt, don't depression. This does not mean the situation is irreversible. With a few measures, it's miles possible to arrange your company's price range and get out of the pink. Keep reading to find out what to do!

Main causes of a company in debt

The company's debt is the ratio of its total debts to its net worth . In other words, it shows how much the company owes to third parties versus the amount it has.

Debt, in this sense, can be a sign that the company is growing and investing in its future! Ever thought about that?

But often, debt speaks to the state of financial struggle in a business. And that can be for many reasons — discover the key ones!

Financial mismanagement

One of the most common causes of business debt is poor financial management , both by companies and entrepreneurs.

This can include uncontrolled spending, confusion between corporate and personal assets , lack of budget planning, and excessive spending.

Economic crises

Periods of economic instability can negatively affect companies, reducing their revenues and leading to debt.

This happens mainly when the economic crisis directly impacts the revenue of a company that does not have an emergency cash reserve or has a very high fixed cost structure.

In other words, the loss of revenue combined with the lack of planning and organization forces the company to resort to third-party capital, which plunges it into debt.

High interest rates

When it resorts to third-party capital without proper planning or on an emergency basis, the company ends up taking on debts with extremely higher interest rates.

Financing and loans with high interest rates overload the company's finances, which, if not reorganized as soon as possible, could end up turning these debts into a real snowball.

3 signs that your company is in the red

So, how do you know how to organize your company's finances? The first step is to be aware of the signs so you can recognize debt as quickly as possible.

This way, you can quickly define plans on how to organize your company's finances and restore its financial health.

Know the main signs!

Late payment of bills

It is important to pay close attention to accounts payable control and ensure that the company's obligations are being met on time — being able to keep payments up to date is a good sign!

If you are not able to make bills on time, that could be a caution sign, because the employer can be beginning to get into debt.

Now, if responsibilities aren't being met, even if they're late, that could be a sign of the start or worsening of debt. The need to apprehend what introduced about this and to enforce reorganization plans will become pressing.

Reduction in profit margin

If, even with a constant flow of sales and revenue, you are noticing a decrease in profit margin , this is a sign that the company has a cost and expense structure that is beyond what is necessary or what it can support.

It is very important to take an “x-ray” of this cost and expense structure and understand where adjustments can be made.

Constant need to take out loans

An instrument that should be used and monitored frequently is cash flow, as it shows when the company has or loses the capacity to continue meeting its obligations consistently.

Instability in cash flow forces the company to seek loans to continue paying its bills, whether due to reduced revenue, increased operating expenses or customer default.

How to organize your company's finances? See our tips

Organizing the finances of a company in debt is always a challenge. The complexity of the plan will be directly related to the size of the debt and the time it took you to diagnose the situation , as we mentioned before.

Check out some tips on how to organize your company's finances and pay off your debts!

Financial assessment

The first step in organizing your company's finances is to make a thorough and realistic assessment of the current situation, understanding in depth what outstanding debts are and their values.

Make a spreadsheet with each debt, its initial value and the updated value with interest.

Cost cutting

Cutting expenses is an emergency measure that will help you raise the funds needed to pay off your debts. Identify areas where expenses can be reduced, such as eliminating non-essential expenses or optimizing processes.

Negotiation with creditors

After making the first internal adjustments, it is time to go outside the company and complete the plan.

Contact creditors and negotiate better payment terms, such as discounts, longer terms or reduced interest rates.