Courtney is behind Ideaspired. You can read her blog and tips here: Ideaspired

If your business is in debt, you’re not alone, since 70% of small businesses have debt, according to Federal Reserve Banks. Overwhelming business debt can add to the stress of being a business owner. Taking charge of your debt with smart budgeting and planning can help you improve your financial future.

Evaluate Your Debt

Having a clear understanding of your total business debt helps you create a plan to pay it off faster. Review your outstanding loans, credit cards, bills to vendors, and other debts to get a total. Prioritize the debt and make a plan to pay it off as quickly as possible.

Create a Realistic Budget

Review your current business budget to see where your money is going. You’ll likely need to change certain areas to free up more money to pay debt or reduce your reliance on credit to pay for business expenses.

Cut Expenses

Paying off debt faster and reducing new debt can only happen if you cut your expenses and/or increase your revenue. Look for bigger cuts that give you a large amount quickly. Then, add several smaller cuts that can build up for more savings. Examine every expense to ensure it’s necessary and find places to cut. Ways to cut expenses include getting rid of unused company vehicles, moving to a smaller location, or improving your efficiency.

Boost Revenue

Bringing more money into your business while cutting your expenses gives you a bigger cushion of cash. Offer a special to boost sales, or focus on upselling current customers for larger individual sales. Try new marketing techniques to attract additional customers.

Collect on Debts

If your clients pay through invoices, collect payments faster. For example, if you normally give people 60 days to pay, you might change the payment terms to 30 days. This gets money coming into your business faster, so you can pay off debt and improve your financial situation. Tracking down late payments can also help.

Consolidate Business Debt

Consolidating your debt can make it easier to pay off. With a consolidation loan, you can pay off individual debts and make a single payment each month. An ideal consolidation situation gives you better terms or interest rates than the individual debts.

Negotiate Rates and Terms

An alternative is to negotiate the rates and terms of your current debts. If your lenders lower your interest rate, you can have smaller payments or pay the debt off faster. If you can’t keep up with your current payments, ask your creditors if they’ll extend the length of the loan or accept smaller payments.

Form an LLC

By forming an LLC, you can often lower your taxes, which can improve your financial situation. It also provides protection against personal liability. To form an LLC in Idaho, you need to choose a registered agent, file a certificate of organization, and create an operating agreement. If you don’t want to do the paperwork yourself, you can hire a formation service without the large fees a lawyer charges.

Improve Your Financial Health

By paying down your business debt, you set yourself up for a healthier financial future. If you need help getting an overview of your business, consider the options for startups from Five23.

The post Tackle Business Debt and Improve Your Financial Health first appeared on Five23.

1. Make a “value-based” pros & cons list

Imagine that you’re considering a move. Will you relocate to another city? Pull out a piece of paper and write a classic pros and cons list for the move. Now, here’s where science has added a helpful twist. Assign every list entry a number from 0 to 1, based on your personal values. For example, if being closer to your family is a “pro” that’s extremely high on your list, you might score it at 0.9 or 0.95. If you listed “near the mountains” as another pro, but you’re more of a culture hound than an alpine hiker, then it might only rate 0.2 or 0.3. Do the same for the “con” side. Leaving a job you love could score 0.8, for example, if your career is an essential part of your life. Add up each side, multiply by 100, and see whether the pro or con side wins out. You can also make a separate pro and con list for staying where you are. Compare the final values and see how you feel about the outcome. Often, confronting a “logical” number (which was actually weighted with emotions) can illuminate subconscious feelings. If you see the numbers but still feel pulled in the opposite direction, it’s worth doing some deeper exploration. You can also use this technique for smaller, less personal decisions, like which project or feature to tackle next.

2. Explore future scenarios

Considering the best- and worst-case scenarios is a common way to make tough choices. What’s the very best future you can imagine? The worst? And how would you feel if that disastrous scenario became reality? To expand on this technique, psychologist Gary Klein has studied a twist he calls the “premortem.” In a Harvard Business Review story, Klein explains why a premortem is the hypothetical opposite of a postmortem.

       “A postmortem in a medical setting allows health professionals and the family to learn what caused a patient’s death. Everyone benefits except, of course, the patient. A premortem in a business setting comes at the beginning of a project rather than the end, so that the project can be improved rather than autopsied.”

       Imagine that your decision was terrible. The project you chose to tackle was a crash-and-burn disaster. Now, explore every possible reason for the failure. Once you address this worst-case scenario, you can take steps to prevent it — and make a better decision in the first place. In fact, research shows that premortems (which are also called prospective hindsight) can increase our ability to identify future outcome causes by 30%. On the flip side, try to visualize that epic, best-case future scenario and gauge how you feel. If you’re not happy or excited, it’s worth considering why. Amazon uses a variation of both these techniques. Company developers must draft a hypothetical press release and FAQ announcement before they even write any code. By working backwards, the team tackles the most difficult decisions upfront and clarifies the product’s value proposition.

3. Avoid binary choices

We often get stuck choosing between this or that. Should I go back to school or start a business? Should I move to Seattle or stay in Denver? It’s easy to see the world in black-and-white, but there’s typically a grey option in the middle — or several shades of grey. Maybe you could spend summers in Seattle and winters in Denver. Or, you could live in Denver for another couple years and move to Seattle later. Sometimes the right choice is not one of two opposites. It’s a more creative, nuanced, or flexible solution.

4. Consult with others

Sharing your dilemma with others can justify or reinforce a choice, but more importantly, it’s a valuable way to gather valuable information. If you can’t decide whether to move, for example, don’t just survey your friends and family (who will also have skin in your game); talk to someone who made the same move. Ask how they feel now about their decision. For professional or business decisions, try hiring a consultant. Find people who have deep, niche expertise and learn as much from them as you can. The extra information you gather will almost inevitably help you make better choices in the future.

5. Avoid hidden decisions

For nearly 6,000 years, North America’s First Nations hunted the plains buffalo by chasing them over cliffs and finishing the kill below. This method enabled tribes to gather and store large quantities of meat, hide and fat for the long winter ahead. I always wondered why so many bison would just run over the cliff. They were usually pursued by hunters on horseback, for one, but it’s also an example of herd behavior. All the animals are just following the group, letting the flow take them where it will. Buffalo jumps are a good metaphor for hidden decisions or non-decisions, which we’ve all experienced at times. When you procrastinate or delay an important choice, you’re still making a decision — and it’s rarely a good one. For example, maybe you need to part ways with an employee, but you put it off to avoid a potential confrontation. If the employee is negative, unpleasant, or ill-suited to their role, the choice to wait and delay can poison the whole team. Non-decision is a choice with real consequences.

Those 35,000 daily choices can be daunting, but quick action is the enemy of decision fatigue. Choose fast and whenever possible, tackle your choices head-on. Use as many methods as you need to pick the best solution. Just don’t follow the herd. Choose what’s best for you — and then stand firm in your decisions.

One final note: if you’ve started a business or launched a product and you’re feeling overwhelmed by all the decisions, please know that it does get easier. Additionally, Five23 can help you analyze your chooses. Our packages can help any stage startup reach its full potential and take the guesswork out of the process. Once your business is stable, many of the big, foundational choices are done and you will reach equilibrium. Then it’s time to focus on the constraints. Determine where you can make the most important, impactful decisions, and use them to grow or refine your business. Remember: decision-making gets easier with practice, and a new choice is always just seconds away.

The post 5 Techniques that Help Entrepreneurs Make Hard Decisions first appeared on Five23.

Valuing a Startup

The problem arises when using the comparable transaction valuation method on startups. In many cases, the startup in question has little to no revenue. Therefore, using the comparable transaction method is not ideal in these circumstances. The majority of investors use a Discounted Cash Flow (DCF) method valuing with startups. While this method can work well, it does not follow the traditional framework of a valuation based on the company’s assets, liabilities or past profits. Instead, the startup’s valuation is based on their potential for success using metrics such as growth, active user base and possible profits. In essence, the DCF valuation model uses the concept of time value of money. Typically, future cash flows are factored to the company’s projections of at least three years. These cash flows are then discounted by using cost of capital to give the factoring party a present valuation of the company.

Adding Potential

The largest take away from the typically DCF valuation method for a startup is the need to prove potential. Without potential, the valuation of the venture in question will be quite low. Though having revenue may increase the valuation and the likelihood of receiving investment, the growth potential for future profits is what will drive the investment. A few key growth factors which may be considered by startups to show their potential growth could be:

• Active User Base
• Lifetime Value of Client
• Total Addressable Market
• Organic Traffic

Currently, there are over 50 valuation methods used by investors globally. Although the majority of investors use a DCF method, all of the methods used focus on potential. Therefore defining your venture’s potential in a myriad of areas will give a clearer picture to future investors; no matter what valuation method is used.

The post Investing in Potential first appeared on Five23.