Getting your business off the ground takes hard work and perseverance. Like many other entrepreneurs, you’ve presumably invested a bulk of money into your business; so much in fact, that you may currently owe creditors. Many small business owners take out loans to jump start their business which can be a practical approach to getting off the ground. However, not every owner has a disciplined approach to paying back debt. For example, many entrepreneurs borrow too much money and are unable to repay it. Additionally, a business can get off to a rocky start or encounter an economic rough patch. In these circumstances, debt can spiral out of control and become a large burden on both you and your business. If you’re a business owner who is struggling, here are five surefire ways to get your small business out of debt and back on track.
5 Ways to Get Your Small Business Out of Debt
1. Prioritize Debt
A notice of deficiency isn’t easy to deal with. The best way to start paying off debt, including tax debt, is to first prioritize what you’d like to pay off first. There are two common methods for doing this. The first and most simple is to categorize your loans or debt from largest to smallest. Paying off the largest debt first can create a huge sense of confidence and relief. Many people find that paying off the largest debt first provides the biggest psychological comfort. The second and most efficient method is to pay off debts based on the interest rate. From largest to smallest, pay at least the minimum monthly payment to keep interest rates down. Next, you can dedicate more funds to the debt with the highest interest rate to start reducing that debt.
2. Strategize Pricing
As master of your business, owners have some advantages of making revenue that an individual with a fixed salary doesn’t have. Take a look at other businesses around you. Many large department stores, such as Nordstrom, will host sales, promotions, discounts, or coupons. Some people scour their favorite store and will only shop during a sale. These are small ways to keep people interested and buying your services or products. Be wary, however, of services like Groupon. Many small businesses make the mistake of adjusting their prices too low and consumers will only shop there when a Groupon is available. This has been known to put some people out of business.
3. Cut Costs
Reducing costs is easier said than done. If you haven’t already, cut down outgoing expenditures to the bare bone as much as possible. You may want to start with cutting costs in your personal life as well. Rethink your grocery list, shop at farmer’s markets or take advantage of online delivery services and coupons. Reconsider indulgent purchases like those trendy shoes (that will be out of season next year anyway). If you’re still struggling, it’s time to cut operating costs in your business. While it may be difficult to acknowledge that not every purchase for your business is an absolutely necessary, one method is to itemize your products and services to analyze which ones generate the least revenue. If you have services that actually costs you more money or time than its worth, then cut those or group them in to another package.
4. Get Paid on Time
If you run a business where deferred payments are accepted, you may want to revise your payment plan to shorter terms. If you run a wedding invitation business, for example, you likely don’t get paid until the completion of the design. These outstanding invoices can take up to a month or more to be paid. Call all clients with outstanding payments, from oldest to newest, or send reminders of their past due payment. Furthermore, enable a penalty fee into your contract for late payments moving forward.
5. Consolidate Debt
Creditors want you to pay off your debt; they don’t want their investment wasted. Be aware, however, that consolidated loans aren’t always a wise move. Ideally, look for a consolidation program that offers a lower payment than what you’re currently paying each month, but be sure it won’t negatively affect your credit score. Consult a financial professional to help find the best consolidation strategy that works for your business.