A Comprehensive Guide to Dig Your Small Business Out of Debt

A Comprehensive Guide to Dig Your Small Business Out of Debt

Debt is necessary when it comes to running a small or medium-sized business. Line of credit, a business loan, or business credit card can be helpful in the process of hiring a new employee, financing growth investments, or purchasing an important piece of equipment. However, too much debt can affect your cash flow and jeopardize your operations. Remember, the less you owe, the better the chances of reinvesting. Here are tips to dig your business out of debt.

Debt consolidation or refinancing

The first step to figuring out what your business owes is to do an in-depth debt inventory. A good idea would be to check your credit report. Why? Well, a credit report for your business will clearly point out all accounts that the business has open. Also, you should check all outstanding funds owed to vendors as well as in-house debt, such as salaries due.

Now, when you have a good idea of the amount of debt crippling your business, it’s time to act. Consider either debt consolidation or refinancing.

If you have several loan advances from different parties, consider consolidating all of them into one. That is, you get a third party to pay all your debt, then you will make monthly payments to the third party. Here you must be careful not to be duped. A good deal is one that will enable your business to make small monthly repayment and less expensive compared to before the consolidation.

Also, you can consider refinancing your debts by taking a lower-interest loan to repay a higher-interest loan that your business owes. Vendors, as well as staff, are crucial, and you might consider prioritizing them or risk bankruptcy.

Cut on costs

Tough times call for stringent measures. If you haven’t done a review of the business and its processes yet, now might be a good time. You will be surprised how some expenses are on autopilot, and several assets hold the key to debt recovery.

For instance, you might discover some office equipment are not used that frequently, and selling them an opting to lease might be appropriate. Also, consider downsizing to a smaller office and letting go of some employees – it’s hard but necessary for business survival.

If you own the office floor, consider subleasing unused space or creating more space for the same. In short, prepare employees for a spartan lifestyle in the office till you dig yourself out of the debt hole. After all, it’s better than winding up the business. The funds that will accrue because of measures taken can be used to reduce business debt.

Try and boost revenue

To repay off your small business loan, you need money. To get money for the same, you need to increase your revenue. For a business in the debt shackles, money is not everything- it’s the only thing. Get creative and raise funds to help with the debt repayment or risk closure.

There are several ways that your small business can try and boost revenue; here are a few suggestions:

  • Low-cost promotion – since the business is cash strapped, you don’t want to overstretch your budget with marketing. Consider offering a limited time sale by providing coupons and discounts. The best way to reach more customers would be through affiliate marketing.
  • Content marketing – this method is also useful, and you may not have to spend more money compared to TV and print ads or paid-per-click advertising. You may want to focus on social media for now, as that’s where potential leads are available.
  • Reward loyal customers – Increase your customer satisfaction and retention by first rewarding clients who have been there with you for long. Then proceed to ask them for a referral. Happy customers will willingly be glad to refer you to other potential customers, perhaps friends, colleagues, or even families.

Also, consider offering discounts for prompt payment rather than chasing up money for weeks. Speaking of chasing money – that’s our next debt recovery tip.

Chase down late paying customers

The business is in distress, and we need money. The tagline for you should be “we need money, and we need money fast.” In that note, first things up is to pull up the client’s database and look up each client’s invoices.

Generally, any business that bills its client with invoices has a payment term. Often, loyal customers tend to have a long-term payment arrangement. In either case, it might be time to revise the same for the sake of the business. For instance, if your payment term stipulates payment within 90 days, consider changing it to 30 or 45 days for new purchases.

Also, you’ll have to be aggressive with clients whose invoices are past due. As a courtesy, the first step would be to send demand notices stipulating the invoice is due and total money owed with penalties. However, if there is no response within the timelines outlined in the notices, then consider hiring a collection agency to collect the same for you. Remember to factor in the collection fee to the penalties.

Talk to your creditors

Creditors don’t want your business to fail – this is a significant point.

Often, your vendors and lenders are willing to renegotiate terms with your small business for lower interest rates and extended payment plans that involve smaller minimum payments. Others might even be lenient and pardon some penalties if you clearly highlight your circumstances.

So, when you get too far in debt, don’t work yourself out, speak up. You will be surprised why you were stressed up in the first place. Creditors know that if your business winds up, they get little to nothing. Therefore, they are willing even to accept even a lower payment for your delinquent debt, to get your business off their books.

Yes, some vendors may get spooked and jump ship to do business with other companies they consider a safer bet. Nevertheless, many will still work with you to settle the business debt.

Wrap Up

Managing your debt is very crucial if you want to enjoy the joy of being a small business owner. You don’ want to run a business controlled by creditors, do you? If you are too worried about planning, perhaps you may consider hiring a credit expert as a consultant to help you come out ahead.

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