Getting Your Small Business Out of Debt
Since the start of the pandemic in 2020, several small businesses have struggled and found themselves in debt to cover their monthly expenses. If your business is currently in debt, there are simple steps that you can take to manage your debt.
Review your budget
Take the last few month’s bank statements to create a basic budget if your business does not yet have one. Consider all sources of revenue and expenses and identify trends such as expenses that have crept up or revenues that have declined. Should your business have multiple sources of revenue, categorizing income and expenses can help you understand which parts of your business are the most profitable.
As you go through your budget, you may be surprised by how many expenses are on autopilot. Consider categorizing your expenses in one of three ways:
1. Continue. These are the expenses that are essential, and you must continue to pay them to run your business efficiently.
2. Negotiate. This is expense is necessary, but you can find a way to lower the cost by negotiating with the supplier or by finding a different supplier.
3. Eliminate. Expenditure in this category should be stopped.
After reviewing your budget, you are now able to see which sources of revenue are most profitable. Therefore, you should focus your efforts on increasing high-profit revenue which will give you the largest return on investment.
Collect money from customers that owe the business; this can increase the bottom line of the business in the short term. Businesses often find that offering discounts for prompt payment is better than attempting to chase payments for weeks or months.
Consolidating debt can make it easier to pay back provided that the new debt is less expensive than the old debt. If you can consolidate your debt with a lower-rate line of credit, term loan, or even business credit card balance transfer, for example, you may be able to lower your monthly payments.
See if you can negotiate better terms with long-term suppliers or vendors. Communicate with your creditors, suppliers, or anyone else you’re having trouble paying as soon as you can. If you fall behind and don’t let your creditors know you’re trying to catch up, they may send your account to collections or sue your business. Once new terms have been negotiated make sure to get the agreement in writing. Also ensure whether you have given a personal guarantee on the account.
Managing debt as a small business is possible, it just requires a plan.
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