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5 Steps to Eliminating Your Small Business Debt
Unfortunately, debt is a part of doing business. Loans and lines of credit are needed to obtain a functional business space, hire employees, and purchase the necessary equipment. No one likes to be in debt, especially when it comes to the business behind their livelihood. However, if your small business is drowning in debt, you need to face it head-on.
Follow these five steps to start eliminating your business debts today:
1. Audit Your Budget
Your debt essentially begins and ends with your revenue and expenditures. If you don’t know what’s coming in and what’s going out, how will you be able to manage your debt? Start by combing through all of your statements from the past year, identifying income sources and fixed costs. Then, factor in your variable expenses, such as your rent, utilities, employee salaries, insurance, and any unforeseen costs.
It helps to work with a professional accountant to create a newer budget if you aren’t sure where to start. You’ll also want to invest in financial tools that can help you monitor your budget by generating reports in real-time directly from your balance sheets and income statements, as well as offering the ability to customize these reports. This can then serve as your roadmap to keep you on track with your business goals.
2. Reduce Expenses
Your next step in eliminating your business debt is figuring out where you can cut costs. Look through the recurring expenses in your statements and make a list of any unnecessary expenses — or expenses you can spare if necessary. It’s also a good idea to try and renegotiate rates with your existing vendors or find new vendors that can offer you a better price for the supplies and materials you need.
3. Switch to Cash
If you keep using your business credit cards and other lines of credit, you’ll just keep adding to your debt. If possible, see which expenses you can cover with cash each month. However, it’s necessary to make sure you have enough cash on hand aside from those monthly expenses in case you want to restructure your loans.
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4. Talk to Your Creditors
If you’re having trouble keeping up with your monthly loan or credit payments, the best thing you can do is get in touch with your lenders. The truth is, they’d rather get less money from you than no money at all. So they’ll likely be willing to work with you by putting you on a hardship plan, consolidating your loans, or offering lower interest rates.
5. Make More Money
The more money your business can generate, the quicker you’ll be able to pull yourself out of debt — it’s that simple. Of course, simple may seem like an overstatement, so here are a few things you can do to start generating more sales:
- Add additional products or services, if possible.
- Strategize a new marketing campaign to reach new audiences.
- See where you can raise prices without losing customers.
- Over discounts for high-volume purchases.
- Offer incentives, such as a loyalty program that rewards recurring customers.
- Optimize your inventory by assessing the things that aren’t selling. From there you can sell off the rest of that stagnant inventory or see if the vendor has a return policy for unsold items.
- Use social media to engage with your customer base and target audience. A strong online presence is critical to business success.
Anything you can do to generate more money to pay off your business debt will help, so don’t be afraid to get creative!
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