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A Step-By-Step Guide to Cut Your Small Business Debt

Most small businesses and entrepreneurs have business debt due to the costs of managing the day-to-day activities of the company. If you are uncomfortable with the amount of debt that you are carrying for your company, then you need to talk to an experienced accountant to put together a debt pay-off plan.

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In most situations, the debt wasn’t accumulated overnight. So, you shouldn’t expect to pay it off immediately. But, a financial professional will be able to make recommendations about the strategies that can be used to maximize your cash flow and improve your overall financial picture. Here at Easier Accounting, we can help with the financial strategy for your small business.

Our goal today is to provide an overview of some of the strategies that can be used to pay off your debt. Customize these ideas to create the fastest way to financial freedom for your company.

Get Clear on Your Financial Picture

It might be tempting to look the other way and only focus on minimum payments. But, burying your head in the sand won’t solve your debt problems. To get started, you need to consider the amount of debt that you are carrying and the cash and assets that are available to use.

Schedule an appointment with your bookkeeper and/or your accountant to take a look at the overall picture. Make a list of outstanding balances that need to be paid, ongoing expenses for business operations, as well as a budget you can maintain going forward. This budget needs to be designed with two goals in mind: avoiding additional debt and paying off the current balances. You need to be sure that you are earning more than you are spending if you want to pay off the debt.

During this meeting, your small business accountant might make suggestions about common budgeting and debt-reduction strategies. For example, it can be beneficial to sort through expenses to identify essential costs and ways to reduce overhead spending. At the same time, you need to look at strategies that might be available to increase monthly revenue.

Hands-On Debt Management

Now that you have a clear picture of your financial status, you might consider opportunities to negotiate better terms for your balances. Go through your accounts one by one to ensure that you understand the terms of the loan and the payment options that are available. Then, you can figure out the credit lines that need to be paid first to optimize your long-term results.

You can read the fine print in the loan terms. Or, better yet, call the company to learn about your options. This conversation can sometimes lead to a negotiation regarding the payment options. Some vendors will offer a discount or early-bird price if the money is sent ahead of schedule.

Consider using the snowball strategy to pay off all of the balances in the shortest period. If you can negotiate a quick payoff for a smaller balance, then you can roll the money that you would normally be spending for that payment into the next loan.

If possible, you should re-negotiate the terms for every line of credit. Most lenders know that it will be a huge loss if they send the account to collections. So, they are interested in finding a win-win solution for both parties. You could potentially negotiate a different minimum payment or reduce the interest costs on the money that you owe. Talk to them about late fees and restructuring the payments so that you can create an environment that will make it possible for you to pay the balance.

Set Up a System

After the negotiations are done, do everything in your power to make sure that you keep up with the payments going forward. The late fees and interest costs can make debt unmanageable. But, you can avoid these problems by making timely payments every month.

You need to have a system in place to ensure that the cash flow is available for debt payments. Make sure that you are paying your debt obligations before you consider investing money in other business development opportunities.

This system could be structured to allocate a certain percentage of your revenue to debt payments. Or, you might consider the option to set a specific dollar amount that needs to be paid each month, regardless of the revenue that you receive.

Should You Consolidate Your Debt?

Some people automatically assume that debt consolidation is the best answer to get out of the financial hole. While consolidation can be a good solution for some people, it isn’t always the best method. Make sure that you understand the terms of the consolidation before you sign on the bottom line.

What is debt consolidation? It is the method of acquiring one large loan to move all of the smaller balances into a single account. Consolidation could simplify your financial picture, and sometimes it can reduce the amount of interest that you are paying each month.

If you decide to move forward with debt consolidation, be warned that the lender might require some collateral. For example, you might need to offer a personal guarantee to back up the funds that are offered.

Be cautious to manage your spending after the consolidation loan is in place. Some business owners fall into the trap of paying off their credit lines with the consolidation loan, then running up the balances again because of poor financial management strategies.

Maximizing Your Business Revenue

Managing your debt payments is the first step to take control of the financial health of your company. In addition to looking at the amount of money that you are spending on debt payments, you also need to evaluate the money that you are receiving. Your repayment plan won’t work if you don’t have a solid cash flow to make the payments that are needed.

Aggressively building your income will be a fast way to pay down the balances. Generating more cash will help you feel motivated to reduce your small business loans and build your company for the future.

What are the best strategies to bring in more money? Here are a few solutions that might work for your company:

  • Increase Prices: Don’t bump your prices without evaluating how the increase will affect overall sales. A small price increase won’t likely have a major impact on the number of orders that you receive. But, if you sell a large volume of products, then this small increase could add up over time. For a quick boost in sales, you might make an announcement to current customers that the prices are going up. Many people will purchase products before the change happens.
  • Assess Inventory: How many items are sitting in the back of your inventory room, lost in the stacks of boxes? Your inventory represents money that is available for your company. Since you already have these products on hand, you don’t need to spend a lot out of pocket when the products are sold. So, you might consider offering a special sale to move those items. In the future, look for ways that you can optimize your inventory to avoid spending a lot of money on products that will sit in storage for a while.
  • Leverage Upsells: When someone is ready to make a purchase, it is easy to encourage them to add another small item to their shopping cart. Look for a way that you can offer bundles or incentives to encourage people to spend more money when they are making a purchase.
  • Reach Out to Current Customers: People who have already purchased from your company have shown interest in the products and services that you offer. Instead of spending your marketing budget to acquire new customers, consider the benefits of reaching to current customers. You will likely experience a bigger ROI from these marketing efforts.
  • Diversify Your Services: Is there anything else that you can add to your line of services? Diversification might allow you to break into new markets or offer your skills in a different way.
  • Ask for Referrals: Contact your best clients to see if they are interested in referring their contacts to buy from your company. You can sweeten the deal by offering a referral bonus or incentive. If people are happy with the service they have received from your company, then they will be more than willing to refer their business contacts, friends and family.

Schedule an Appointment with Your Accounting Team

These ideas should get the creative juices flowing to help you reduce your debt load. But, you don’t need to carry this responsibility on your own! Don’t be afraid to talk to an accounting expert to get customized advice to match your business. Ongoing suggestions from your accountant can be a valuable way to turn your business around and increase your future success.

If you don’t have an accounting team to help, then you need to contact us at Easier Accounting. We specialize in small business accounting, and we know the best strategies that can be used to maximize the financial outlook for your company. Call us for more information about the services that are offered: (888) 620-0770