by Karen Murphy, MostChoice.com

Although debt is a necessary element in the day-to-day operations of many companies, too much debt can lead a company to insolvency. Cash-sapping finance charges and compounding interest are the enemies of good debt management.

You can minimize your debt in several ways, but it all begins with analyzing your cash flow. In this way, you can adequately assess your financial situation and make the necessary adjustments to reduce your debt load.

Knowing what you can and cannot afford to pay is critical. Once you have a clear picture of your cash flow, you can set goals to pay off your debts, making the debts with the highest interest your greatest priority.

Minimizing debt really boils down to two things: decreasing your spending (cash flowing out of your business) and increasing your income (cash flowing into your businesses). Sound easy? Not necessarily. If increasing your cash flow were so easy, you probably wouldn't be in debt in the first place. There are, however, a few tips that may help relieve your situation.

Know the difference between good debt and bad debt. If it doesn't provide you with a long-term financial payoff, it isn't good debt. Short-term debt in which the loan lasts longer than the item you bought, and for which there is no financial payoff, is debt you want to quickly be rid of, or to avoid entirely.

Concentrate on paying off debt with the highest interest first. Better yet, work on securing a lower rate. One way to do this is to consolidate your loans into one loan with a smaller interest rate. Paying high interest rates is a costly consequence for incurring debt. If you do consolidate your loan, look out for hidden charges that may punish you for paying off your debt early.

Work with creditors to rewrite your loans. Creditors may be open to extending the time you have to pay, and to change the payments to ones you can afford. In this same vein, you may be able to refinance the debt for a longer maturity with lower payments. This will cost you in the long run, however, since you end up paying interest over a longer period of time.

If possible, stop borrowing. The more you borrow, the more your cash flow will be compromised. Look to suppliers for credit if you need temporary equipment or supplies. This might be less costly than securing debt with a high interest rate.

Increasing Cash Flow

You can employ a variety of methods to help increase your cash flow including collecting receivables, increasing sales, reducing inventory and operating expenses, and reviewing tax strategies.

Tightening credit terms will increase your cash receipts and help reduce your debt. Be aggressive with your collection policies -- reduce the float time on customer payment checks; process checks promptly as you receive them; and use a bank that follows a short collection process. Consider offering rewards or discounts on future bills for customers who make timely payments. In most cases, the longer the balance remains unpaid, the less likely you will receive the full payment.

Take a careful look at your inventory and decide whether or not you really need it. Reducing the amount of inventory you maintain will help decrease your cash outflow.

Consider also altering your prices through discounting or pricing policies in order to increase your sales volume.

Taking advantage of available tax credits from the government can help your cash flow situation by reducing your total tax bill. Such credits include: job opportunities at your business for certain disadvantaged employees; specific research and development costs; the renovation and rehabilitation of certain qualified buildings; and accelerated depreciation on certain equipment and tangible property.

If you find you have a cash surplus, take that money and pay off as much debt as possible. Considering the fact that any investment will most likely not yield as high a return as the rate of interest on your debt, it is much wiser to pay off debt than to invest your surplus.

If you find you can't make all your payments on time, prioritize payments by necessity. First pay those creditors that have the potential of halting your business -- utilities, suppliers and payroll -- and delay payments to secondary suppliers or those less likely to impact your business.

Finally, you should work closely with your banker and pay your bills promptly. If you have maintained a good payment history, your creditors will be more likely to work with you in the future.