Here are proven business survival strategies that empower you to face your business debt head-on, break free from it, and get on the road to success.
—Whether you’re just starting out or already expanding an existing business, you will definitely need capital from time to time to purchase equipment and inventory, build credit for the future, and take advantage of business opportunities.
For small businesses, getting a business loan can be the fuel needed to reach the next level of success. However, thorough preparation and the right choices are crucial to avoiding costly mistakes that can ruin your company. Ultimately, you’ll have to decide whether getting a business loan is a worthwhile risk or not.
While financing through loans is a common way to raise capital, excessive debt is alarming as it imposes short- and long-term financial burdens on your business. Borrowing more than your business can afford may put you in danger of wiping out your profits and have nothing to show for when you need them the most.
From poor profits to limited flexibility and even bankruptcy, getting behind on debt payments may create a financial death spiral for your business. Debt can be pretty overwhelming, but there are steps you can take to control, manage, and even eliminate debt. Here are proven business survival strategies that empower you to face your debt head-on, break free from it, and get on the road to success.
Identify, Assess, and Prioritize Debt
Determine how much you owe by making a list of every debt your business has—from all loans and lines of credit to credit cards and any obligation owed to suppliers.
Be specific, and include all the required details such as each liability’s interest rate, monthly payment, due date, remaining balance, and the like. Understanding where you stand in terms of debt, or how much debt you have and your ability to pay it off, will help you make a solid game plan moving forward.
You have to prioritize which debts you’ll work toward paying off first. Generally, experts recommend paying off high-interest debts first because these are the ones that end up costing you the most. Plus, the longer you have them, the more you lose money to interest.
Keep in mind, however, that there’s no one-size-fits-all approach when it comes to prioritizing your debt. Take the time to assess those critical and outstanding debts that will damage your business relationships or, worse, destroy your business. No matter how you choose to attack the debt, make sure to make timely payments on each account.
Increase Income and Reduce Expenses
Tough times call for tough measures, and that may mean cutting down on spending. Reducing costs frees up extra funds that you can put toward debt and helps you avoid new debt.
Review your expenses to see where you can cut back. Perhaps you’re spending too much on office equipment or business supplies and should go back to purchasing just what you need. Or maybe you’re not looking around enough for more affordable and high-quality options. You may also consider renegotiating prices or contracts with third-party vendors to save on supplies.
It also pays to check and find out if there are any costs that you can delay to help you pay down debt. If an expense is not urgent, then you can choose not to pay it until you have to. Explore a wide array of options that will allow you to earn more income for your business. Evaluate if you may generate money by either raising your prices or lowering them to boost sales volume.
Do some quick research to see where the demand is and where you can make changes. You can go for something as simple as hosting special sales or try to be bold by rewarding loyal customers with exclusive saving deals or introducing a new product or service.
Review Your Budget
Now that you have the actual numbers, you can review and redo your budget and make a new one that fits your current financial standing better. One way to spend more responsibly is to keep track of exactly where your money is going. To keep your debt in control, you must have a budget for every business function and stick to it.
If you’ve accounted for fixed and variable costs and find that you have more leftover profits than initially calculated, you can earmark those extra funds to pay off more debt.
Negotiate with Creditors and Lenders
There’s no harm in reaching out and talking to your creditors and lenders about your situation. Proactive and early communication goes a long way towards keeping your debt manageable.
See how you and your creditors can work out a plan to help you repay your debt faster or make it cheaper. If your accounts are in good standing, you may be able to negotiate the balance, ask for lower interest rates, or suggest an extended payment plan—any temporary modifications to your repayment requirements can go a long way.
A lender may also be willing to consolidate your debt into a long-term loan package or a new debt with better terms.
Improve Invoicing and Shorten Payment Terms
It might be time to change your payment terms if you have customers who consistently pay late or are on a long-term payment plan. Make a list of all overdue debts and politely ask the customer about the bill and your intent to collect within a short but reasonable amount of time. It’s best to be clear that you want a commitment about when and how they’re paying back.
Depending on the agreement with your partners, you might also consider shortening the due date on invoices. Remember that the longer your payment terms are, the longer it will take to get paid. Instead of giving your customers 90 days to pay, you may cut it to 60, 45, or 30 days instead.
Eliminate Debt and Expand Your Business
It takes a lot of accountability, discipline, and responsibility to get out of business debt successfully. But with the right attitude and strategies, you’ll be able to get that debt under control and manage your business with confidence and ease.
