Debt is not a foreign concept to small business owners. In fact, SEMrush reports that 40% of small businesses hold over $100,000 in debt! While taking on business debt is incredibly common—and often necessary—it can still be crippling. Thankfully, there are several steps you can take to get a handle on your business debt and eventually eliminate it altogether. Here are some tips from the Utah Microloan Fund to help you manage your debt and pay it off quickly.
Rework Your Business Budget
If you can’t afford to pay off your debt, reevaluating your business budget is the first thing you should do. You need to know exactly where all your money is going and how to best use those funds. Take a look at your budget and ask yourself a few questions. Are you meeting your revenue goals? Are your actual costs exceeding your projected costs? Are you struggling to cover your expenses due to cash flow issues? If the numbers aren’t adding up, find ways to reduce ongoing expenses and create more room in your budget for debt payments.
Find Ways to Cut Costs
Use your business budget to identify opportunities to reduce spending. You may have to make some drastic expense cuts until you can get your debt under control, so don’t be afraid to pare down to the essentials. Look for subscriptions you rarely use, professional memberships you can cancel, or time-consuming tasks that you can automate.
Are you spending a lot of money on payroll costs? Online payroll and time-tracking tools can help you monitor how your team is spending their time and identify opportunities to cut costs. Look for a payroll platform that includes mobile timesheets, employee scheduling, real-time alerts, and smart reporting for valuable labor insights.
Boost Your Income
On the flip side of cutting costs, boosting your income will also help you better handle your debt. Of course, this is easier said than done. Revenue growth often creates new expenses, which can add new debt to your load. Look for ways to increase your business revenue while minimizing your additional costs. Encouraging repeat business from existing customers is one great way to do this. On average, it costs about five times more to acquire a new customer than to retain an existing customer. Focus on increasing customer retention over acquisition and your profits are bound to climb.
Negotiate with Lenders
Did you know that you can negotiate your loan rates and terms? Call your lender to discuss your options and see what they can do. If you’ve been making your payments every month, your lender may be willing to offer deferred payments, better interest rates, or reduced fees to help you get through a cash flow slump. Try to have this conversation as early as possible so you can keep your business credit intact and avoid hurting your reputation with your moneylender by missing payments.
Consolidate Your Debt
Debt consolidation is another option, especially if you’re holding a lot of high-interest debt. Debt consolidation involves taking out a big loan to pay off a number of smaller loans. This will bring all of your debt together under one loan, making it easier to manage and, ideally, reducing your interest payments. Look for a loan that offers a lower interest rate than you’re currently paying. If you can’t qualify for a traditional bank loan due to poor credit or insufficient collateral, look for lenders that offer alternative loan options.
Managing business debt is critical to ensuring the long-term financial success of your business. While it’s hard to face debt head-on, it’s important to get things under control as soon as possible. Dive into your business budget, look for ways to cut costs, and take steps to improve your loan rates and terms so you can tackle debt once and for all!
Looking for business funding? The Utah Microloan Fund offers loans to entrepreneurs and startups that don’t qualify for traditional bank loans. Complete our online orientation to learn more!
Article by Brittany Fisher of financiallywell.info