If you have a small business, you will agree that clearing business debt is always at the top of your mind. Watching business debt pile up can be overwhelming for small business owners – but it can also work as a motivation to create a debt reduction strategy. Sometimes, all you need is robust planning and intelligent financial decisions to get your debt situation back on track and take control of your finances.
Here’s DKODING some interesting ways to consider if you are a small business owner wondering how to deal with business debt:
Set a Business Budget
Your last business budget may have had some flaws, due to which your business debt has grown over the months. Analyze your budgeting strategy and expenses to understand what went wrong. Then create a new budget for your current financial position. As you set your business budget, go to the timeline and draft a savings and spending plan that can help you stick to your goals.
Assess Your Debt
List down all the debts you need to payoff and get a clear picture of the total amount you owe. Calculate the debt-to-income ratio and figure out how long it will take you to pay it off if your income does not increase. This exercise will also help you prioritize which debts you need to pay off first and which can wait – based on the interest they cost you. Pay off the most expensive debts first and then work on the others.
Find New Ways to Increase Income & Revenue
An essential part of paying off business debts is to maximize the cash flow. Find ways to increase the revenue flow and income in your business. Think about diversifying your business offerings to attract more customers. Take advantage of market gaps, if any. Bring about a change in prices if needed, and focus on your business’s most popular products or services to boost company sales. Increasing sales is the best way to handle small business debt.
Decrease Company Spending
Cut back your business expenses to increase your savings and channel the money into your debt payments. Analyze your monthly spending to find costs that can be reduced or eliminated altogether. You may be surprised to see how simple it is to cut costs. It also helps minimize inventory to maximize cash flow until business debts are paid off. Whatever you can save from your business expense can help in the swift repayment of your business debts.
Try Negotiating with Suppliers & Lenders
Approach your suppliers, especially those with whom you have a long-standing relationship, and negotiate your pending payments with them. Usually, suppliers favor loyal clients and support their business by waiving off a portion of a debt or giving more time to complete payment. On the same note, you can also talk to your lenders – if they can adjust the terms of your debts to give you some more time. Banks and NBFCs have several provisions for reducing your interest cost and debt burden.
Automate Business Debt Payments
Activate automated payments for all your debts to ensure that your monthly instalments reach your lenders on time. Ensure that your bank account has sufficient funds at the beginning of every month to complete the payments. It will help you stay on track with the repayments and allow you to focus on your business.
Consider a Refinancing Loan
Sometimes, paying off multiple or even one loans is difficult due to a seasonal flux or unplanned expenses in business. In such situations, consider taking out a refinancing loan. Banks often have different provisions for such loans. Personal loans for self-employed can help you consolidate your debt and reduce your interest rates. Even though personal loans cost more than secured loans, they will be less than the interest rates on credit cards and other kinds of credit.
Getting out of debt is difficult, but if you rely on the right tools and resources, you can work your way out of debt. It takes hard work and smart business decisions to turn your business around. We have listed only some of the best ways to get out of business debt, but every business is unique. Strategize to reduce your debt load and organize your finances. If you find your debt situation overwhelming, talk to an expert! KreditBee supports small businesses in their pursuit of financial independence by redefining financial strategy and offering affordable funds wherever needed. Get in touch with us now!
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