If you have a business of your own, then you have to deal with personal as well as business bills quite often. Thus, you need to track two separate sets of finances: one for your business and the other for your personal need. Sometimes the situation becomes so difficult that the entrepreneurs take debt to overcome the financial crisis of your business.
Moreover, debt is very much essential when you decide to add new product lines, launch new products, or grow your business further. You need debt to hire new employees or buy new equipment for your business. Thus, debt is an inseparable part of your business.
However, debt over a certain limit might curb the cash flow and put your business at risk. The purpose of debt remains the same for small businesses as well. You must not move ahead with the decision of taking a debt unless you have sufficient advice.
Fool-Proof Ways for Digging your Business out of Business Debt:
A couple of things can be done to reduce your burden of debt. You will get help from each and every way discussed below. So, keep following them and check whatever is necessary.
1. Avoid Unnecessary Spending
Slash those spendings that are not so evident for the working of your business. So, discover those areas where you spend your time on a daily basis. If possible, then take care of those areas by yourself. At the end of the month, you will realize how much money you are saving in this way. If you cut these unnecessary expenses, then you can use them for paying off your business debt.
2. Cut Costs
You would have to cut the cost of running your business along with the reduction of unnecessary spending. An increase in revenue is not enough to repay debt unless you reduce the expenses. For cost reduction, you can sell off equipment and office supplies that are not so important. If necessary, then you can buy used equipment or take lease equipment.
Moreover, you can shift your office to a place with lower rent. For savings, relocate into a home office or select a co-working space with a short-term lease. Finally, you can find someone who runs a similar business in the industry. Then consult with them to share employees and other resources.
3. Create a Business Budget
Create a feasible business budget and stick to it for paying your debts in a timely manner. Gather all the bills that you often pay for your business and keep aside a part of your budget for paying them. If you find it necessary, then add other bills to your business budget. Thus, it would be easier for you to repay your debt and meet the expenses simultaneously.
4. Formulate a Strategy to Boost Revenue
While working on a plan, be careful about sharing your business information. It can affect your goodwill if others come to know that your business is facing any financial difficulties. If the problem gets severe, then it might affect your business sales, contracts, and other agreements. Thus, you can implement both/any of these two ideas to pay off your business debt fast.
Don’t go with the thought that you will get top dollars for your goods and services. Since you have a debt, your primary objective must be generating extra income through sales. If your business operates in the service industry, then offer incentives.
For example, offer discounts on large orders to retain customers and stay competitive simultaneously. According to studies, 82% of the customers prefer the store that offers a loyalty program. Thus, you must try to reward your existing customers to build customer loyalty.
On the other hand, advertise the products and services for increasing the sales turnover. Get active on social media promote your products on that platform. Encourage the customers to add feedback and respond to their questions promptly.
A marketing company performed a survey and found that 84% of people trust online reviews and make purchasing decisions. So, attend your company reviews and act accordingly.
Get Extra Clients
Offer discounts so that your existing customers can refer your brand to others. This referral will help you to earn extra clients and speed up the selling process at the same time.
5. Consider Debt Consolidation
Debt consolidation is the term for combining more than one business loan or credit card balance into a single debt. You can thereby calculate the interest rate for paying off the debt. However, do some homework before you opt for debt consolidation.
6. Prioritize Debts
Make a note of interest rate and monthly payment for every debt you are having. Business debt generally includes loans, credit cards, lines of credit, and outstanding payments to vendors. Then rank the debts in the order of priority to understand which one must be tackled first. Some experts recommend repaying the debt with the highest rate of interest first.
If you have strong credit, then consider debt consolidation or refinancing. We have already discussed debt consolidation in our discussion. Thus, we are now focusing on the benefit of refinancing. You can refinance a business debit card by transferring the balance to a new card with a 0% interest promo period. Next, try to pay off the debt before the promo period is over.
Apart from this, check whether it’s possible to change a variable loan to a fixed loan. If so, then repay that as quickly as possible. All the aforesaid options will offer a lower fixed rate and decrease your payments as well.
8. Shorten Payment Terms with Clients
Find out whether your business has a long-term payment plan with any of the clients or not. Similarly, you might have clients who make late payments for your business. You have to revise payment terms in both cases.
Say, for example, allow your clients to pay within 30 days from borrowing an amount from your business. It is not a good idea to follow 90-day payment terms. Besides this, offer a discount for early payment and a penalty for late payment for your clients. You can thereby collect on unpaid invoices instantly.
9. Hire a Debt Restructuring Firm
It might be tedious for you to recover a debt all alone. Thus, you can take the assistance of a debt restructuring firm. They are professional firms who will negotiate with your creditors and business debt collection agencies for your sake.
If it is beneficial for you, then the debt restructuring firm will request creditors to extend, renew, or change existing credit agreements. You have to make an agreement with the debt restructuring company for using its services.
Furthermore, you can set up automatic withdrawals and settle the outstanding debts of your business. You will have to pay a certain fee for obtaining the service of the debt restructuring firm you are hiring. But, it is less expensive than filing for bankruptcy.
Make sure to disclose the amount you can afford to pay every month. Then only the firm will design a debt settlement that will be beneficial both for your business and its creditors.
10. Cut Charitable Giving and Temporarily Pay With Cash
You must keep aside social service when your business is going through tough times. It is an admirable trait to help society. Still, you must avoid this practice to reduce your business expenses as much as possible.
It will increase your burden if you continue to pay with a business line of credit. Thus, you will be worried about how to pay off these debts. Therefore, rework on your budget and allocate a certain amount of cash for any kind of purchase. You won’t procure new business debt if you pay the expenses with cash and cash equipment.
Note: This strategy might not be suitable for all business owners. So, analyze this method before using it to restructure your business debt.
11. Have a Talk with Creditors
Negotiate with your creditors to lower the interest rate. If you have taken a loan from a bank, then discuss the available option with the loan manager. If you qualify for a hardship program, then you can lower the interest rate and payment extension.
The hardship letter will explain the current financial position of your business. Moreover, it will prove that you need assistance for repaying debts to your creditors.
12. Create a Stack Repayment Plan
If you are unable to consolidate all your loans, then establish a target debt to repay the remaining amount. The stack method is a debt schedule to visualize all your debts for easy repayment. The interest rate greatly influences your ability to repay debts. Loans with high interests are known as target debts. So, try to repay the target debt first and save your business money in the long run.
Thus, make a list of monthly payments for your business and identify the one with the highest interest rate. Try to determine how much extra you can pay over the minimum payment. The additional amount you will be able to pay is termed as stack repayment.
The Bottom Line…
It can be disastrous if you are too aggressive to repay your business debt. It might put a negative effect and leave your business short of cash for operation. Thus, slow and steady are key terms for handling the debt repayment process. Make sure to have the best overall choice to satisfy your business needs.