What are a company's liabilities and how to manage them? Check out the best tips

Do you have any outstanding loans, debts or payments in your business? Learning how to manage liabilities is fundamental to guarantee the financial health of your company. Liabilities include all the financial obligations that you have to third parties, such as banks, suppliers or even employees. If not managed efficiently, they can become an obstacle to the growth and stability of your business. 
In this article, you'll discover the best strategies for managing your business's liabilities effectively, with practical tips based on the series "Finance for Entrepreneurs" of the Wiese Foundation. 

 

What are a company's liabilities and why is it important to manage them? 

 

Liabilities represent a company's financial debts or obligations, such as bank loans, bills payable or outstanding expenses. Good liability management is essential because it will allow you to: 

1. Meet your financial commitments on time.
2. Maintain the liquidity of your business.
3. Avoid over-indebtedness problems.
4. Guarantee the sustainable growth of your company. 

Advice for managing the liabilities of a business: key strategies

Here are 7 key tips for managing the liabilities of your business. 

 

Maintain a balance between income and expenses. 

Balancing income and expenses is the first step to keeping the finance of your business under control. It is important that current liabilities (short-term debts) do not exceed current assets (available resources). Before taking on new debt, analyze your projected income and current expenses.  

Practical advice: Apply strict control of expenses, avoid unnecessary expenses and prioritize payments of financial obligations. 

 

Perform short-, medium-, and long-term financial planning 

 

A long-term plan (8-10 years) may include strategies for confronting economic cycles, while short- and medium-term plans should focus on concrete cash flow and liquidity objectives. 
 
Key benefit: With adequate planning, you will be able to anticipate debt maturities and avoid financial problems. 

 

Sell non-essential assets 

 

The accumulation of unnecessary assets can be a burden on your business. It is fundamental to identify goods that are not indispensable to your operations, such as obsolete equipment or disused vehicles, and sell them. 

 

Advantage: You will generate additional income that you can use to reduce debts or strengthen your company's cash flow. 

 

Convert variable costs to fixed costs 

 

Variable costs, such as repairs or unforeseen purchases, can destabilize your budget. An efficient strategy is to convert these costs into fixed costs through maintenance contracts or leasing services. 

 

Practical example: Hire a regular maintenance service for your equipments, instead of spending large sums on unexpected repairs. 

 

Create a contingency fund 

 

A contingency fund will allow you to face unexpected expenses without compromising the financial stability of the business. If you set aside a portion of the cash flow regularly, you will ensure the availability of resources for emergencies. 

 

Importance: This fund acts as a safety net that will allow you to cover contingent debts or unexpected expenses without compromising cash flow. 

 

 

Renegotiate your debts with creditors 

 

If you feel that your liabilities are an excessive burden, renegotiating with your creditors can be an effective solution. Options such as debt consolidation or refinancing with better terms can ease financial pressure. 

 

Recommendations: 1) Look for credits with lower interest rates and 2) Extend payment deadlines to improve your cash flow. 

 

Reduces operating costs 

 

Analyze your operating expenses and look for savings opportunities. Measures such as changing suppliers/providers, renegotiating contracts or eliminating non-essential expenses can generate additional resources to pay your debts. 

 

Practical example: Switch to a more affordable energy supplier or revise service contracts that may fit your current needs. 

 

More advice in the series "Finance for Entrepreneurs" of the Wiese Foundation 

 

If you want to delve deeper into how to manage liabilities and other financial aspects of your business, we invite you to explore the series "Finance for Entrepreneurs" of the Wiese Foundation. In this series you will find practical tools and strategies designed especially for Peruvian small businesses and entrepreneurs. Click here to watch the series.