Business debt can be a good thing especially when it helps you to finance your business, purchase more items, and expand your offerings.
But, there is a dark side to debt. Debt can become too much to handle and overwhelm your business. If your business doesn’t meet sales projections, its debt can get out of control, ultimately destroying your business.
If your business’s debt is becoming unmanageable, you need to nip it in the bud. Find out how to get out of business debt and save your business with these 7 tips.
1. Increase your revenue
Obviously, you need money to pay off your debts. To have more money, you need to increase your revenue.
When in debt, you need to be tactical in increasing your revenue. First, you want to get in more sales of your products or services; this can be achieved by increasing awareness of your business via paid ads and any other means feasible. Secondly, you can create promotions to generate interest from customers. You might have a special sale or pass out coupons. Promotions can encourage people to buy more from your business. But, be careful. Discounting your products or services too much counteracts your ability to increase revenue.
You might be able to raise your prices. Look at your margins, if you have low margins, you might be able to increase them. Raising prices might scare some customers away. But, if you make the value of your products or services more appealing, you’ll likely have many customers who will pay the increased prices.
You can also increase your revenue by freeing up excess inventory. If you have a stockpile of items, you can try to sell them off. Of course, if you sell those items, you might not have enough to sell to customers. But, if you have inventory sitting around, it might be worthwhile to sell them.
2. Get customers to pay sooner
If you bill your customers with an invoice, you will experience some lag between when customers make a purchase and when they pay you. To get money faster, you need to get your customers to pay faster.
Shorten your payment terms. If you currently give customers 90 days to pay, you might shorten that to 45 days for future purchases. The longer your payment terms, the longer it will take to get paid. Some customers will take all the time you give them, so think about the maximum amount of time you’re willing to wait to get paid.
Also, you can get more money by tracking down late-paying customers. Check your records for outstanding invoices. Contact them and remind them of the bill. You might send them collection letters. If your attempts to collect do not work, consider hiring a collection agency. You’ll have to pay the agency for its services, but you’ll still receive a portion of your receivables.
3. Cut your costs
If you have small business debt, you’re probably only spending on things you think you absolutely need. But, if you have a large amount of debt and are struggling to recover, you might be able to reduce your spending even more.
When times are tough, you must thoroughly analyze what you really need. Look for anything that you can cut out of your budget to save money. Even the things you think are needs might not actually be needs.
There are ways to cut business expenses. You can make several small cuts, such as cutting back on business decorations. Or, you can make a single large one, such as removing a seldom-used truck from your fleet. Depending on how much debt you have, you might need to do a combination of both.
4. Prioritize your debt
Prioritizing which of the debts you pay off first is another method for how to get out of business debt.
Determine which debts are critical, meaning they will cause your debt to get worse and possibly destroy your business.
Consider debts that will affect business relationships. Not paying off some debts might damage your relationships with vendors or creditors. You might lose your ability to make future purchases or get more funds from them.
You must also consider interest rates and penalties. You should pay off loans with large interest rates and penalties before other loans. Think about any business collateral you might lose if you default on your loans. For instance, a bank has the right to take your vehicle if you don’t pay your loans.
There isn’t one best way to prioritize your debt. You have to weigh all the previous things to determine what to pay off first.
5. Negotiate better terms
Negotiating better terms is among the tips for getting out of debt. You can ask for lower interest rates, smaller minimum payments, and an extended payment plan.
Creditors don’t want your business to fail. If your business goes under, your creditors don’t get anything. It’s more beneficial for them to work with you. They might get a smaller amount or have to wait longer for their money, but receiving some money is always better than no money.
Talk to the people and businesses you owe money to. You might be surprised by what they’re willing to do for you.
6. Get help from friends and family
Your friends and family might be able to give your business debt help. They might be willing to pay off your debts. Then you will pay back your friend or family member.
Getting a loan from a friend or family member can be to your advantage. They are often more understanding and willing to work with you than a traditional creditor is.
A friend or family member might charge you a small interest rate, or even no interest at all. They might also let you pay smaller amounts over a longer time period. And, friends and family members might let you vary your payments. For example, you might be able to make a small payment one month and a larger payment another.
7. Consolidate your debt
Consolidating your debts into one large debt might work for your business. Basically, you take out one big loan to pay off all your loans. Then, you only have one debt to make payments toward.
Having one debt with a single payment is not the point of consolidating your debt. The goal is to get a loan that has better terms than all your other loans combined. Consolidating your debt is only worthwhile if you benefit by paying less in interest overall, getting extended payment terms, or having lower monthly payments.