Despite its negative connotations, debt is an important part of managing a small business. Credit cards, lines of credit, and business loans can help companies hire workers, buy equipment, and grow. However, excess debt stifles cash flow and puts businesses at risk. Here are a few Small Business finance tips on debt elimination and management.
Inventory All Debts
Start by sorting debts by monthly payment and interest rate. This step includes credit card, line of credit, and loan payments, along with accounts payable. The process helps small business owners prioritize debts and pay the most important ones first. New business owners should strive to repay all their debts within the first year, as it minimizes bankruptcy risk.
Increase Sales and Cut Costs
Once a management plan is in place, it’s time to think of ways to increase sales. Here are some great ideas:
- Start a customer loyalty program. These programs improve customer retention and satisfaction. Approximately 80% of survey respondents said they’d be more likely to shop at stores offering loyalty programs.
- Build a social media brand. To find more customers, business owners must reach them where they are. By running a social media page and responding quickly to customers’ questions and concerns, business owners can build a solid foundation for continued growth.
- Raise prices. With strategies such as volume discounts, it’s possible to raise prices without alienating customers.
Ideally, sales increases can bring enough revenue to pay down debt. However, if expenses are high, consider cutting costs by selling off unneeded equipment, downsizing, and sharing costs with other companies.
Refinance
When the Federal Reserve raises interest rates, debt gets more expensive. If a business owner can’t afford a full repayment, they should consider refinancing or debt consolidation. With refinancing, owners take out low-interest loans to repay debt, while consolidation combines multiple debts into a single monthly payment. All these options allow business owners to lock in low fixed interest rates and decrease their payments.
Consider Shorter Payment Terms
Some businesses have clients on long-term payment plans, while others deal with customers who pay late. In both cases, it may be necessary to revisit payment terms. Control debt by giving new customers 30-day—instead of 90-day—terms. Offering discounts for early payments and assessing late fees may help streamline the invoice collection process.
Closing Thoughts
While the above strategies will help to reduce or eliminate debt, business owners still have options if these tactics don’t work. If debt becomes truly unmanageable, it may be time for the business owner to think about selling the company, liquidating assets, or going bankrupt. Hopefully, though, it won’t come to that. With the tips in this guide, small business owners can manage or eliminate debt.
Managing a Small Business 