By Sophie Jones, savvysme.com.au
You cannot run a successful business if you are sinking in debt. Yes, sometimes loans are necessary for running a business since it can help acquire new stock, hire new employees and finance other business ventures. However, too much debt can cripple a business and sometimes even bring it to its knees. If you are running a small business and are afraid of losing your business to debt or are simply out looking for tips for running your business debt free, take a look at this guide on how to successfullyreduce business debt.
- Analyze Your Budget
This is the very first step you should take towards achieving financial stability. Assessing your current financial situation will enable you to know where your business stands, making it easy to know which direction to take. Analyze your current budget and find out if it is sustaining your business or if it is operating in excess. Your budget analysis should enable you to identify your income sources and costs. All this information can be obtained from your accountant.
- Minimize Costs
After finding out exactly how your budget looks like, you can now go ahead and make all the necessary changes to it. If your business is running over budget, the best course of action to take is to cut on all unnecessary expenses. A great way to reduce expenses is to sell off items you don’t use and keeping the ones you cannot do without. You can also do away with subscriptions you don’t use or move to a smaller office space with cheaper rent expenses.
- Increase Your Income
It is obvious that the more money you make, the faster you can reduce or even get rid of your debt. If you boost your sales you can accumulate cash at a faster rate and do away with your debt. A great way to do so is by increasing your prices. Just ensure to inform your customers before you do so to avoid losing them to your competition. You can also bring in additional products or services. Another great way to increase your income is by rewarding customer loyalty through a loyalty program. If customers feel appreciated, they will keep coming back for more and even recommend your business to other people. This way you will retain your current customers and acquire other new customers.
- Consider Refinancing High-Cost Debt
If you have a high-cost debt and have tried to pay it off to no avail, then it might be time to consider refinancing it. This means taking a lower interest loan to repay your original loan. Yes, you will be adding another loan to your list, but the overall effect is your original loan reducing by a significant amount. You can also consider consolidation where you can combine different loans into one loan.
- Reevaluate Payment Terms
If you have clients that are on a long-term payment plan with your business, you might consider reevaluating these payment plans to help you minimize debt. If you gave your clients a 30-day payment plan, you should consider reducing this to 10 days. That way you will not have a lot of money owed to you by clients. You can encourage clients to pay early by offering them early payment discounts and fining for late payments.
- Hire a Professional Debt Restructuring Firm
Sometimes getting out of a business debt using your own self-help methods does not work. If this is the case, then it might time to bring in the big guns. Hire a debt restructuring firm to help you get out of debt. These professionals will negotiate withdebt collection agenciesand creditors on your behalf. They can help you renew, change, or extend your current credit agreements with the debt collection agencies and creditors. They will do this in a formal and legal way. It might come at a small fee, but the overall result is way better than filing for bankruptcy or losing your business altogether.
Climbing out of debt only requires you to take a step towards achieving financial freedom. The aforementioned ways are a great place to start. It might seem tough at the beginning, but it is totally necessary. Ask yourself the hard questions and decide not to be in debt anymore. It is doable. A little sacrifice is all it takes.