Your business is downsizing due to bad debt and you need help? here are 21 smart tips on how to reduce business debt and save your business.
Businesses come with risk, and in order to run a successful business you must accept calculated risks. But unfortunately, no matter how cautious you are in your calculations, you are bound to make bad deals that never look good on the books.
There are many ways for an entrepreneur to accumulate debt in a business and some of them take out loans and overvalue stocks. The Small Business Administration (SBA) in the United States is known to say that poor credit management, lack of money, and personal use of business funds are some of the top reasons small businesses run into debt. for themselves.
Businesses that lack the money to cover basic expenses such as rent and payroll can quickly slide into crime or worse, go bankrupt.
If you suddenly find yourself in more debt than you initially expected, don’t panic, there are options that can help. Below are business tips that can help you reduce debt and revitalize your stimulating business.
21 smart tips to reduce your debt and keep your business
- Estimate your debt
The first thing you should do when you find out that your business is overwhelmed with debt is to write off all of your debt. By noting them, you can get a clear idea of the amount of your debts and your chances of repaying them. You will also need to calculate the debt-to-income ratio, which will tell you if you have enough working capital to continue to service your debt.
Once you know where you are, you can make a plan to avoid being overwhelmed with debt. Conventional wisdom says that you must first pay off the most expensive debt (or the one that costs you the most in interest and fees). Whichever way you choose to tackle debt, make sure you make payments on time for each account.
2. Decide on your business budget
If a business is having debt issues, the first thing you can do to resolve the issue is budget for your business. If you’re falling behind on monthly payments, dig out your financial plan and adjust for unexpected changes in cash flow. Your business budget helps you identify your revenue streams, fixed costs, and variable costs to see where your cash flow problems are coming from.
You might also consider bringing in accounting experts to help you review your budget and make sure you’re doing something wrong. You can also automate the budgeting process with accounting software like QuickBooks to keep track of your business receipts and receipts. Ultimately, revising and revising your budget will help you better manage spending and develop a plan of action to meet your debt reduction goals.
3. Reduce your daily business expenses
The next thing to watch out for is the costs your business incurs on a daily basis. Your expenses may be the reason why you cannot pay off your debt. You need to determine which expenses you can eliminate with the services you need for the day-to-day running of your business.
For example, do you pay for rarely used subscriptions? Are there any business subscriptions that you can temporarily suspend until you get your finances back on track? Reducing these costs will help you save more money that you can use to pay off your debt.
If you are renting an office, consider renting unused space or moving to a smaller floor space to lower your monthly rent. You can also negotiate price cuts and packages with certain providers. For example, software companies often offer discounts on invoices billed annually rather than monthly. Your financial statements can be especially helpful in identifying expenses that contribute to your debt.
4. Know your numbers
Don’t just check the numbers your business is running on, know them. Knowing them means you know the cost of each of your materials, labor, rental or rental costs, and everything in between. You also need to know how much each item is worth, up to a dime, and the interest rate on each of your debts. Otherwise, there’s a good chance you are paying too much for something.
5. Be smart when completing your orders
Sometimes you might be tempted to stock up on an under-stocked item that brings people to your store, but in general, if it isn’t earning you the profit others in the industry are making, it may not be worth it. -not be worth it. Selling that results in extremely low margins usually costs you money. Identify lost sales and eliminate them or seek a lower price from suppliers.
6. Negotiate with creditors and creditors
Along with cutting costs and increasing your income, find ways to reduce your debt. You can try this:
- Consolidation of loans with clients . The lender may want to combine your debt into a long-term loan program. Consolidating your loans will give you manageable monthly payments and more time to pay it off.
- Reduce interest rates . Obviously, you can’t just tell lenders to cut rates. But if you make regular monthly loan payments and are doing well, they might want to offer you a better rate. For business credit card debt, you can move the balances to newer credit cards that offer 0% or zero start-up fees.
- Registration for the program with disabilities . The Disability Program gives your business more time to pay off debt and lower interest rates. To get approval, lenders want to see your business’ financial statements and tax returns. You need to prove that your business needs better rates, faster time frames, and more time to be successful in paying off debt.
Another option you have is to hire a debt restructuring firm to negotiate on your behalf, which can help your business renew or modify existing loan agreements so that you have more time and / or lower payments.
7. Switch to cash payment
Credit cards and other lines of credit are on top of your debt, which is on top of the debt you already have, so you need to shift from how you pay your business expenses to controlling the burden of debt. your debt. This method will require you to only buy what you can pay in cash.
Paying in cash or cash equivalents such as checks helps avoid acquiring new debt with the business and avoids increasing existing debt. This option might not be right for everyone, but it’s worth considering if you’re considering debt restructuring, especially if you’re a small business.
8. Focus on target debt
The debt with the highest interest rate is called your target debt. When paying off debt, it is best to focus on the target debt, as those are the ones that cause the most damage. Some of these debts are usually credit cards or bank loans, and the interest rate on each of them can severely limit your ability to repay principal effectively, so you should aim to pay off the loans first. high interest rates.
Start by making a list of all your minimum monthly payments and make sure they are covered, then look at your interest debt balance to determine how much is over and above the minimum payment you can pay each month. This additional amount is sometimes called stack compensation. After the first loan is paid off, apply that amount to the debt with the next higher interest. After paying off the second debt, take that compound amount to tackle the next debt, etc.
9. Increase your margin
Each industry has its own benchmark for what counts as high margins. You have to find out what you have. You can check with your industry trade group and once you know it, try to make any necessary adjustments. You can raise prices, lower costs, or both.
The goal should be to increase margins without increasing overheads. What do others charge for the same item? Can you buy more at a significantly lower price without wasting your debt service savings? This is what you need to find out.
10. Get more income
You need money to pay off your debt, and if your business isn’t generating enough revenue to do so, you’re in dire straits. One way to remedy this situation is to increase income levels. Some ways to increase your income in your business:
- Diversify . Can you add an additional product or service to your current offering? Are you reaching all of your potential customers with targeted marketing? Is there an untapped niche audience that you haven’t considered? Answer these questions and scale your business.
- Increase your prices . Increase prices enough to maintain the same sales. Make sure to let existing customers know before increasing prices and ask if they would like to order anything before the changes go into effect. Either way, it could lead to a much needed increase in income.
- … Or lower them . Offer product discounts and service discounts, especially for loyal and repeat customers to increase sales. Just make sure the prices aren’t too low to avoid increasing losses as sales increase.
- Get what you owe . Increase your receivables by tracking late payments from customers. You can even offer your customers discounts or prepayment bonuses.
- Upselling . Is there a way to sell more to your existing customers? Can you offer incentives or combine your existing products or services in a way that encourages people to buy more from you? A quick email with a quick sale, limited offer, or subscriber-only offers can be a miracle in increasing your monthly income.
- Optimize resources . If you have inventory that is not for sale, see if you can adjust your buying habits or look for suppliers who offer you the right to return unsold items, which will free up both physical space and space for more inventory that could actually sell. , and will increase your income.
- Sell your surplus . Watch the things you aren’t using – or using to the fullest – and sell them to people who can. Can you sell unused furniture or equipment on Craigslist? Is there another business that might buy a part of your business that you no longer appreciate? Note that you should never sell anything that you have promised on existing debt. This is an outright scam that can have serious legal consequences.
11. Keep track of your inventory
Like your refrigerator at home, some things tend to stick around. For this reason, you might be tempted to delay ordering more of your popular inventory, but you shouldn’t. All you have to do is find a product that is not selling well and get rid of it.
Inventory is probably where most of your money is stuck and you’re probably paying interest on that stale inventory that everyone has forgotten about. Don’t leave it unnoticed in your store. Even if you move it at cost or with little loss, liquidation is better than tied up money.
12. Overestimate your expenses
Many small business owners take the old adage “you have to spend money to make money” to the limit and become careless. When you’re in debt, you need to cut down on anything that isn’t necessary for the day-to-day running of your business. You need to know where your money is going, and just having a general idea of your monthly expenses is not enough. You need a detailed breakdown of everything your business buys.
Maybe you’ve paid for consultants and other B2B services that haven’t generated much profit, now is the time to put those services on hold. Again, the cost of your trip can get out of hand, you need to reduce it while creating other opportunities that can make it easier for your employees to travel.
13. Don’t block your business
Many companies will make sacrifices to slow their growth so that they can devote more resources to paying down debt. While this may seem like the right decision at the moment, it is a mistake that can have even more dire consequences for your business as a whole.
You should always aim for growth and as it grows debt will become easier to pay off. Slowing down is rarely the solution. Don’t miss the opportunity to enter a new market or roll out a new service just because of your financial situation. The calculated risk can lead to a significant increase in your business’s monthly income, which will help you pay off your debt faster. Keep growing your business and keep your goals in mind.
14 Check your interest rates
Business owners are always in an economic climate with low interest rates. If you have older debts, you should try to renegotiate the terms and interest rates. It is possible and possible.
15. Talk about the conditions
If you have payment issues, ask the supplier to extend the time. You’re not going to save money when you do, but a longer pay period can give you the financial space you need until the product is sold.
16. Sell and rent
Do you have relatively new vehicles or other large facilities that could be used for other business purposes? Sometimes it makes sense to sell things and rent them. Your payments for it may be lower. To assess the impact of this strategy, you will likely need professional help to help you calculate the numbers.
17. Ask your employees
Chances are you’ve been employed before. You know that people on the front lines will see things that managers may not see. Your employees know where the money is being spent because they are the ones running the business. Ask them what they think about it. They may not be sure what they are telling you for fear of retaliation, but you need to explain to them why you are asking and maybe offer a bonus to anyone who helps the company save money.
18. Pay attention to your customers
Don’t become the business owner every customer hates, but insist that customers comply with payment terms. There’s a good chance you’re not going to fight if your payment is a few days late, but after a few weeks, it’s time to call the customer and ask for payment.
If late paying clients are a big deal, you can add a late payment clause to agreements clients sign before they start working for them. Check with your local professional advisers to find out if there are any laws that govern late fees you can charge. Good business relationships happen when both parties feel respect and value.
20. Staff reduction
No one likes to lay off staff, but if your business fails, there will be a lot more layoffs. Sometimes you have to make tough decisions that negatively affect a few in order to protect many. If there are employees you can do without, consider firing them. You can combine positions by paying one person more than a fee for two employees.
20. Talk to a credit counselor
Most credit counselors are consumer oriented, but a few work with small businesses. If you’re having trouble negotiating better terms, a loan consultant can help; although you have to pay a fee for this service which could ruin your debt.
21. Getting help from a debt restructuring company
Hiring a professional debt restructuring firm is another option if previous attempts to get out of debt from the business have failed. Debt Restructuring Specialists negotiate on your behalf with creditors and collection agencies to renew, renew or formally amend existing loan agreements.
The debt restructuring process usually involves a written agreement between you and the debt restructuring company, namely: as well as setting up automatic withdrawals from your bank account to pay off arrears.
While a debt mediation company typically costs a monthly fee, it is generally a less expensive alternative to filing for bankruptcy. Some of the benefits of debt structuring include: increasing and decreasing monthly payments, reducing (or eliminating) bills, less time spent negotiating and negotiating with lenders and collection agencies, progressive credit improvement through consistent and timely payments, etc. …
If you decide to hire a professional debt restructuring company, choose a company that is willing to work within the payment and deadline parameters set by the lenders. Plus, being honest with the debt restructuring company about what you can afford to pay each month will help them strike a deal that works for you and your creditors.
22. Attract an investor
If things are really bad, the investor can offer a cash injection often in exchange for a share of your business. In general, this option is best avoided as it involves deducting a portion of your future profits, but if times are really tough, it’s worth considering. However, finding investors is difficult. Don’t wait too long to start looking.
23. Leave your business
Another very drastic way to manage business debt is to quit the business i.e. sell the business in order to raise money to pay off your debts.
To go out of business, your options include; selling the business as an operating business, going into bankruptcy, selling all of the business’s assets (including goodwill, such as customers) and using the proceeds to settle obligations. Note that this method should only be used when the other options are no longer viable and when it no longer makes economic sense to get involved in the business.
