Debt is an unavoidable and even necessary part of running a business. A line of credit, business loan or a business credit card can be useful for your company when you have to purchase new equipment, hire new employees or finance growth. However, if your small business has too much debt, it can increase risk and stifle cash flow. Plus, the less your business owes, the more you can re-invest into the business. So, how do you dig your small business out of debt? You do it by following the easy steps highlighted below:
Step 1: Do a complete inventory of your debt
First things first, you need to sort out your business’s debt according to monthly payments and interest rates. This includes payments on lines of credit, business loans and business credit cards, along with any outstanding payments due to suppliers. This first step can help you prioritize debts that should be handled first. It is recommended to tackle high-interest-rate debts first.
Step 2: Refinance your high-cost debts
If interest rates increase, your variable-rate debt such as lines of credit and credit card balances can also increase. If you cannot afford to pay off these debts in full anytime soon, you need to consider debt refinancing or consolidation. Refinancing allows you to take out a lower-interest loan to repay the original loan. In the case of consolidation, you combine several debts of varying interest rates into a single debt at one low interest rate. Look at different types of lending and see if the company has an online loan calculator to work out if you would save or not. As far as credit card debt is concerned, it can be transferred to a new card that has a reduced interest rate.
Step 3: Boost your sales
After you have created a debt management plan, you need to figure out how to finance the repayments. Boosting your sales is one way of doing so. But, how do you do that? You can start by rewarding loyal customers. Loyalty programs are known to increase customer retention and satisfaction. It is also a good idea to start engaging more with your customers on social media. Ask them for input, respond to comments and get feedback.
Step 4: Reduce your costs
Ideally, you will be able to boost enough sales to tackle your debt. But, if your expenses are too high, you will need to think about cutting costs. You can sell off any equipment or supplies that are not used regularly, and simply lease them when required. Downsize to a smaller office to cut back on rent and utility bills. You can also think about a co-working space, whereby you could share resources with other small businesses to keep costs down.