Sometimes as a small business owner, your company accumulates debt. And, managing business debt can be difficult. Try to take some small business debt management steps before you’re forced to close your doors for good.
Managing business debt
Only half of new businesses survive the first five years. Don’t let your business debt stop you from running your operation. Try these five tips for managing business debt.
1. Refinance or consolidate debt
To lessen your overall debt, you can refinance an old small business loan. When you refinance business loans, you apply for a new loan. You use the new loan to pay off the old loan. Refinancing could you get lower payment terms and interest rates.
If you have multiple debts, you can consolidate them. When you do this, you combine your different lines of credit and loans into one account. Like refinancing, you use a new loan to pay off the old debts. Consolidating your loans reduces the number of creditors you must pay. And, changing your payment terms may reduce your interest rate.
2. Cut unnecessary spending
Go over the purchasing methods, inventory system, and shipping costs for your business. Once you’ve reviewed all costs, rewrite your budget for future spending. Determine how to cut costs that are not necessary.
Look for costs that are digging you further into debt. Extra expenses might include weekly cleaning services, new equipment, and some office supplies. It might be inconvenient to lose these items. But when you’re back to strong financial health, you can decide to buy them again.
Question how expenses contribute to your business. See if you can use alternative buying strategies on some items. Can you buy inventory or items that contribute to your overhead expenses in smaller quantities? Is there a cheaper phone or Internet provider to use? Could you cut paper costs by using online accounting software? The answers can guide your spending decisions, and help you learn how to get out of business debt.
3. Increase your earnings
As you pay liabilities, continue to grow your business. Boosting cash flow can help with long-term goals beyond small business debt management. Use collection strategies for a more predictable projected cash flow. For example, you could fine tune your invoice collections. Practicing collection strategies can shorten the time it takes for you to get paid.
Even if you’re struggling to pay debts, promote your business to increase earnings. Use marketing methods that offer value to your brand without breaking the bank. For example, you could post on social media, hang signs, or host community events.
Another way to earn extra income is to lease space or equipment. Depending on your location, you may need a special leasing permit.
4. Prioritize payments
You can’t manage your business debt overnight. You need to decide which debts to tackle first. Make paying off loans with the highest interest rates a priority. The higher the interest rate, the more you end up paying, and the longer it takes to pay the loan.
Also, put paying debts with a personal guarantee at the top of your to-do list. With these terms, creditors can take your personal assets if your business cannot pay. Your home, car, or personal savings could be used to pay your small business debt.
5. Talk to your creditors
Whether your creditors are vendors or banks, communicate with those you owe money. Before you take on more debt, ask about payment terms. See if you can get on a payment plan that fits your budget.
Do you owe a debt without a payment plan? Find out if the creditor is willing to work with you to create invoice payment terms that work for both parties. If you are on a payment plan but can’t make payments, see if you can get the plan revised. Once you and your creditor agree to a payment plan, do not default on payments.
One great way to manage business debt is to track your transactions online. Our easy-to-use, online accounting software can help you organize your finances. Try it for free today.