Many business owners find themselves in a precarious financial situation where they owe more money than they have. This is usually the result of taking on too much debt and not making enough to cover it back. It’s important that you understand how to manage your debt, so we’ve got some tips for you.
Unfortunately, burying your head in the sand isn’t going to make your debt go away. Many business owners make the mistake of not taking action until it’s too late. If you find yourself in this situation, you need to take action as soon as possible to get your company back on track.
You will likely need to cut some costs in order to get your business out of debt, but there are some payments you must continue making. It’s important to create a list of priorities so that you can make sure you’re still able to operate and stay on the right side of the law.
Here are a few suggestions of what to prioritise:
- Payroll – failing to pay your employees on time will most likely lead to a decline in morale, resignation and even legal action.
- Aged payables – if you fail to pay up, your credit score will be impacted which will make it even harder to get out of debt.
- Suppliers – risking these relationships could really cost your business.
- Credit cards
You should also try to pay off your highest interest debts first so that you can reduce the amount of money you owe over time.
Renegotiate or Consolidate Debt
You might need to consolidate your debt if you can’t afford the repayments on all of them. Consolidating debt means taking out one loan to pay off all of your other debts. This can be a risky move, so make sure you do your research first.
You could also consider renegotiating with creditors, especially those who charge lower rates or are more flexible. If they know that you’re taking action about paying off your debts, they’ll be much more likely to help out by offering reduced rates or longer repayment periods.
Increasing your revenue is certainly easier said than done, but there are things that you can do to give your business a cash injection. For example, offering reduced prices or bulk discounts can help you move more product.
You may also want to consider increasing your customer retention rate by personalising your service or creating a loyalty program. Meanwhile, referral programs are a low-cost and low-risk way of acquiring new customers.
Again, easier said than done but there are some common-sense ways to reduce your costs without compromising the quality of your operation.
Introducing telecommuting, for example, can save you on office space and equipment. You could also renegotiate your energy contracts or switch to a lower rate plan. Finally, consider automating some of your business processes to reduce the need for manual input.
However, don’t be tempted to take a “to the bone” approach and zealously hack away at your business, as this could have a negative effect on your staff, customers and operations which will only make it more difficult to get out of debt.
If you’re willing to put in the hard work, there are ways to get your business out of debt. By following these tips, you’ll be on the right track to financial stability.