Borrowing the right amount of money at the right time can definitely make a huge difference between a business that succeeds and one that struggles. According to the US Small Business Administration (SBA), about 50% of small businesses fail during their first five years due to poor credit arrangements, insufficient capital, and too much debt.
Tips Worth Considering
To help you dig your business out of debt, here are some tips you should try:
Take Inventory
It’d be best to make a list of all your debts. The list will serve as a reminder of how much you owe. This includes the payments you may have for lines of credit, business loans, and business credit cards. You can start by sorting out your debts by monthly payment and interest rate.
Employing this method can help you know which debt to prioritize. Some experts recommend that you should start by paying off the debt with the highest interest rate. This is because debts with a high-interest rate most likely accrue over time, costing you more if you don’t tackle them first.
If you’re a new small business owner, it’ll help to have all of your debts repaid within your company’s first twelve months. This is to lower the risk of bankruptcy for your business.
Free Up Some Cash and Cut Unnecessary Costs
Many experts recommend identifying the parts of your business that got your company into debts and then attacking them directly. Suppose your customers aren’t paying you on time and your business expenses are too high. It would be best to consider improving your collection efforts and cutting down unnecessary expenses, like expensive phone systems. Another way you can free up some cash is by selling off unused scrap or equipment.
Revisit Your Business Budget
If your business debts keep piling up, it might mean that your company’s current budget isn’t working out. Consider creating a new budget based on your business’s recent financial situation. Ensure that your business revenue can cover your fixed monthly costs, such as utility bills and rent.
You can then allot a portion of your business budget for variable costs, like manufacturing materials. It’ll help if you devote the remaining part of your budget (after subtracting all the necessary expenses) to pay off your debts. For example, if you have a credit card, make sure you pay more than the minimum account off your account. Otherwise, your debt will continue to build up and may take several years to pay off.
Be Honest With Your Creditors
If you think your business debts are too much to handle, it’s a good idea to talk with your creditors. Tell your creditors about your business’s current financial situation and the challenges your business is facing. Then, inquire about the possibility of a better payment term.
Debt Consolidation Loan
If you want to combine all of your debts into one payment, try getting a debt consolidation loan. This option is a type of personal loan that you can take advantage of to pay your high-interest debts.
Also, depending on the loan terms and how much debt you owe, a debt consolidation loan can also help you save some time and money. To know more, you can check out CreditNinja or other credible online lending sites.
Boost Your Sales
After setting up a plan to pay off your debts, think about ways that can help you boost your sales and gain more profit. Here are some ideas you might want to consider:
Consider a Loyalty Program
Rewarding loyal customers can attract new ones. Not only that, but it can also improve customer satisfaction and retention. Customers tend to shop at business establishments that offer loyalty programs.
Take Advantage of Social Media
Connect to your loyal customers and potential customers more by using social media platforms. You can do this by asking for their input, replying to their comments quickly, and answering their queries. In addition, you can also use social media for marketing your products.
Consider Raising Prices
If you’re struggling with debts, maybe it’s time to raise prices. However, don’t raise your prices too high to avoid losing some customers. Instead, employ the right strategy when doing so.
In a Nutshell
Most business owners use debts to finance the expansion or boost the cash flow of their company. However, having too much debt without any idea on how to manage it can be catastrophic. Hence, if you want your business to succeed, it’s imperative to learn how to handle your business debts effectively.
