Debt is often an inevitable part of small business and managing business debt could be quite difficult at times. Entrepreneurs often depend on business credit cards, business loans or line of credit for meeting company expenses like hiring a new candidate, purchasing equipment, etc. However, too much debt could be a severe problem and, if not managed properly, holds the possibility of losing the business. According to the U.S. Small Business Administration (SBA), some of the top reasons why small businesses fail include poor credit management, personal use of business finance and lack of money. Managing company finances is a critical factor for success and as a business owner, you need to know how to methodically and effectively pay your business debts before they become unmanageable. So if you find your company under unexpectedly high debts, do not panic and adopt the following strategies to manage them wisely.
- Evaluate and Restructure Your Budget
Evaluate the current financial situation of your business and go through your budget for identifying the income sources and expenses including the fixed daily, monthly and annual costs as well as the variable expenses and unforeseen costs. Restructure your budget to manage your debts. You can hire a professional, opt for consultation or attend workshops on business budgeting. You can also rely on various tools for effective budgeting. Restructuring your budget is the first step towards making the business debt-free.
- Cut Down Your Expenses
Assess your operating cost and identify the excess expenditure which can be cut down. Find out which expenses are necessary for your business and which ones are not. Identify the subscriptions that aren’t used much, the memberships that can be suspended temporarily and the prices that can be negotiated with vendors. Refer to your financial statements and identify what exactly is contributing to your debts. Even small cost cuttings here and there can help you reduce your debt load.
- Develop a Stack Repayment Plan
Interest rates vary for different debts which makes paying off the debt quite difficult as the amount goes on increasing. Using a stacking repayment plan could help. Aim for repaying the loans that have the highest interest rates first. This would be your target debt and paying them off first would help you save more money. Stack payment method requires careful planning and close monitoring but it helps greatly in paying off your debt.
- Increase Your Revenue
The more revenue you generate, the faster you can clear off your business debts. There could be different ways of increasing revenue like launching an additional product or service, increasing your prices without negatively impacting the sales, offering discounts to boost sales, following up on late payments from customers, introducing an up-selling strategy, optimizing inventory and more. Devise appropriate strategies that can help your business earn more.
- Collaborate with Debt-Restructuring Firm
If your plans for clearing the debts aren’t working well, hire a debt restructuring firm that can negotiate the terms and conditions of the loans with debt collection agencies and creditors on your behalf. Such firms can persuade the creditors to formally renew, extend or change the agreements. However, you need to be honest with debt-restructuring firms about your affordability so that they can work out a convenient settlement for you.
- Pay Your Expenses in Cash
If you pay your business expenses using a business credit card or line of credit, try changing the mode temporarily and opt for cash payment. When you continue using credit cards you keep increasing your debts which you would have to pay later. Cash payment would also restrict your expenses as you would purchase only the things that you can afford to pay for in cash. This helps in reducing your debt load.
Research suggests that more than one-third of business owners are not comfortable with the condition of their business debt. So if you too feel the same, know that you are not alone. However, there are multiple ways of turning things around and all you need is a good understanding of the financial health of your company and good strategies to help you save your business.