Business debt can be a double-edged sword. On the one hand, taking down debt in the form of a business loan, line of credit or business credit card is a necessary part of running a small business. Debt helps a company purchase equipment and inventory, hire new employees, expand its offerings and finance growth.
However, too much debt places a company at risk and can stifle cash flow when company operations suddenly fall short of expectations. As a result, sometimes business owners face the possibility of losing their businesses and dreams. However, when times get tough with an overload of business debt, there are steps that a business owner can take.
Getting out of business debt can be a long and difficult process. The experts at United Settlement can help guide you through all of your options. Learn more here!
How To Get My Business Out of Debt
The first step to take toward getting your business out of debt is to take inventory of the problem. Get a big picture view of your various debts and prioritize them according to interest rate, size of monthly payment and any associated penalties. It can often make sense to simply attack your debts according to which have the highest interest rates.
However, there are additional considerations – such as determining which debts, if neglected, could lead to property, plant and equipment being confiscated, thereby significantly impairing operations. Also consider which debts could affect important business relationships – such as those with vendors and suppliers who could frown upon conducting subsequent business with you.
Next, look for ways to increase revenue – because if we’re going to talk about how to get out of business debt, generating additional revenue is going to be an integral part of the process.
If your business doesn’t yet have a loyalty program, consider creating one. Promotions and loyalty programs elevate customer satisfaction and retention – but be careful about discounting your products and services too much. In fact, if possible, you should consider raising your prices and offering volume discounts on larger orders.
This is one reason why getting active on social media can prove rewarding. Clearly communicate the value-add of your products and services and pay close attention to Yelp reviews, quickly responding to comments when warranted.
Ways To Get Out of Business Debt
If you want to know how to get out of business debt, we’re also going to have to talk about cutting costs. In order to save on rent expense and utilities, it can make sense to downsize to a smaller office, shared office space, or a home office.
Look for ways to cut costs by sharing resources and employees with similar businesses. You can also look into selling excess equipment, inventory, office supplies and other items that have gone under-utilized.
The next aspect to consider is whether to shorten payment terms with your customers. If you are accustomed to providing ninety days for payment on invoices, you may want to shorten this term to 45 or 30 days. Many customers take advantage of all the time that you provide them – so consider your cash flow needs and the maximum amount of time that you are willing to wait to be paid.
Consider offering an early payment discount or late payment penalty to help alleviate any issue you may currently have with unpaid invoices. You can also consider hiring a collection agency on a contingency basis to aid in your receivables collection.
Finally, look to improve the terms on your existing business debt. Look especially at your higher interest rate debt and investigate refinancing it at a lower rate – or consider pursuing business debt consolidation.
Business debt consolidation can make sense for the small business owner who carries multiple forms of debt with multiple creditors and varying payment schedules. A business owner uses the proceeds from a business debt consolidation loan to pay off multiple existing loans all at once, thereby streamlining the repayment process into one single monthly payment, often at better terms and a lower blended interest rate than the pre-existing debt.
Apart from the relative simplicity that results from streamlining the repayment process, the primary financial advantage comes in the form of interest expense savings when the APR on the business consolidation loan is lower than the blended APR (taking into account all fees – including prepayment penalties) of all existing business debts.
A properly structured business consolidation loan will save on interest expense over the life of the loan while preserving cash flow on an ongoing monthly basis through a similar or lower monthly payment. Contact the business debt specialists here at United Settlement to discuss business debt consolidation and how to get your business out of debt.
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.