5 Steps to Quickly Get Your Business Out of Debt and Into Good Financial Standing
Debt is par for the course in small business ownership. In fact, outstanding liabilities are so common among small business owners that experts attempted to find a connection between money owed and success. They didn’t find one, but CNBC explains that they did discover 70% of all small business owners have outstanding obligations. Of the debtors, 68% owed less than $100,000, 13% owed between $100,000 and $250,000, and another 13% owed approximately $1 million.
Whether your business is part of the majority or the minority, or if your debt is unmanageable, doesn’t contribute to business growth, and/or stresses you out, it’s time to take steps to pay it down. Here are some tips for doing so sooner rather than later.
1. Revisit Your Budget
If you continually operate in the red, then your budget isn’t working. Revise your budget based on your company’s current financial situation. Accounting Tools suggests allocating the biggest portion of your budget to fixed costs, such as rent, utilities, and pay. Then, it suggests putting aside funds for variable costs, such as manufacturing and materials. Finally, devote a portion of your budget to paying down what you owe. Where you can, pay more than the minimum, as doing so can help you accelerate debt repayment and reduce what you owe in interest over time.
2. Cut Unnecessary Expenses
When reworking your budget, look for items that you can live without either permanently or at least until your business is debt-free. Some of the biggest money wastes, according to Embroker, include office space (in today’s digital age, you really don’t need it), short-term solutions, fancy tools, premature hiring, wrong hiring, non-measurable marketing, swag, and ineffective consultants. Oh, and your daily coffee run probably doesn’t help either.
Though you won’t see the results of your efforts until the end of the tax year, consider restructuring your business so it’s an LLC as well. LLCs offer several tax advantages, which could save you tens of thousands in the long run. You can form an LLC yourself through a formation service rather than hiring an attorney. However, check state laws before moving ahead, as each state has its own regulations regarding this type of entity.
3. Pay in Cash
Fundera suggests cutting credit use until your business is debt-free. The idea is that you cannot get out of debt if you continue to rely on business lines of credit or credit cards to make purchases. For the time being, only spend what is in your account. If you’re waiting on a customer payment, consider invoice factoring. Factoring entails selling open invoices for a small fee in exchange for immediate cash.
4. Make More Money
It may sound obvious, but the quickest way to reduce your debt is to increase your income. A few ways you can do this without taking your focus away from your business are to encourage upselling; diversify your offerings; raise your prices if the market allows; lower your prices to sell more; optimize your inventory, and sell your surplus.
If you need to up your game as it relates to your business skill set, which will ultimately result in higher earning potential, consider going back to school to earn a business degree. Earning an online degree in business allows you to learn the latest concepts in accounting, management, entrepreneurship, and more. What’s more, completing classes and tests remotely allows you to continue running your business, as there’s no need to attend a brick-and-mortar campus in person.
5. Consolidate or Restructure Your Debt
If all else fails, you can always consolidate or restructure your debt. By consolidating your debt with a debt consolidation loan, you can eliminate interest on all but one or two accounts, which can save you thousands of dollars over the life of a loan. You may also want to consider restructuring your debt, which entails altering the terms of your loan agreements so they are more favorable to you.
If you choose to consolidate or restructure, it’s crucial to keep meticulous records both for creditors and for business health. Ideally, these files will be easy to access as often as possible. To ensure they stay organized and don’t take up too much space on your hard drive, reduce PDF file size and appropriately name and store them. Note, the IRS recommends saving financial records for at least six years.
Debt, whether personal or business, can take a toll on your financial, physical, and mental well-being. If you’re tired of living with outstanding business debt, take the above five steps and find your way to financial freedom.
Thanks to guest author Christopher Haymon, of adultingdigest.com, for the information in this post.
Business debt can adversely affect your personal finances, which can hinder your retirement savings. To help you stay on course and make the best decisions for your financial future, connect with Steve today at (970) 443-1873 or contact us by email here.
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