By John D.
With rising interest rates coupled with high rates of corporate debt, increasing numbers of investors are growing concerned over their debt. This is a good time to ask yourself whether you too should be worried about your business’ debt.
Taking out a loan can be a smart move in many situations. However, there comes a time where you need to free your business from debt, especially if it is restricting your operations and getting in the way of your business success.
Read on to learn the 6 essential steps for getting your business out of debt.
Define Your Budget
If your business doesn’t have a set budget, you need to create one, right now! Go through your bank statements from the last few months to help you draft a basic budget. You need to know every source of revenue as well as expenditure while identifying trends such as an increase in expenditures or decline in revenues.
Let’s say your business has a few different clients and/or sources of revenue. You should categorize your income by type to help you to understand what is bringing in the most profit.
Control Your Expenses
While reviewing your budget, you will soon realize that a number of your expenses are running on autopilot. At this point you need to categorize your expenses as follows:
- Continue: Essential expenses that you must continue to pay for, such as Payroll taxes, will come under this category.
- Negotiate: Essential products and services that you may be able to secure at a lower cost through negotiating, such as employee benefits, insurance, and credit card processing fees, will come under this category.
- Eliminate: Expenses you can and should cut as soon as you possibly can.
Make sure to also include expenses that come up from time to time, such as annual memberships or subscriptions. These will probably renew automatically if you don’t cancel them.
Boost Your Revenue
More sales is the primary way to increase the revenue of your business. There are several ways to increase sales, notaby by selling more to your existing customers or looking for new markets.
As you review your budget, you’ll notice that some sources of revenue translate into more profit than others. You should focus your efforts on boosting these high-revenue areas for the best ROI. It’s also important to collect any outstanding debts that your customers have with you.
Consolidate Your Debt
This step won’t erase your debt, but it can make it much easier to pay it back. You can consolidate your debt with a term loan, lower-rate line of credit, or a balance transfer from your business credit card, and only need to cover lower monthly payments.
However, don’t get trapped into a high-interest loan than your original loan. This will result in piling up interest on top of interest, and only digging your debt hole much deeper.
Negotiate Your Terms
If you deal with long-term suppliers and vendors, try to negotiate better terms to reduce your expenses and improve cash flow. Alternatively, you may be able to get a discount when you pay faster. For other creditors, you might have to negotiate more time to pay off your debt. Make it a point to communicate with your lenders or suppliers as soon as possible if you are unable to pay.
In the end, always remember that slow payments and problems like tax liens or collection accounts can be shown up on business credit reports. Keep track of your business credit and stay vigilant in order to protect your business’ reputation.
Get Help if Needed
If your debt has become overwhelming and you’re worried that you won’t be able to pay on time, remember that you don’t have to face things alone. It’s a good idea to take some advice from someone neutral, whether a friend or an expert. Anyone under financial stress is more prone to making a poor decision, so seek a second opinion.
Potential Sources Of Help
There are plenty of ways you can get help with your business debt, from business mentors from any local Small Business Development Center, Organizations helping women in business, or helplines for veterans.
There are also companies around that are specialized in assisting businesses to restructure their debt. You might decide to hire one for yourself but make sure to research them thoroughly first. Also, carefully review your contract before you begin working with anyone to be absolutely sure that you don’t end up throwing away your precious money.
It’s important to keep in mind that business debt isn’t always a bad thing. If you have a secure, affordable financing source along with a solid plan to pay your debt back, you can comfortably take out a loan and come out ahead. At the end of the day, it’s all about the effort you put in, and such minor setbacks shouldn’t get in the way of building the business of your dreams.