What’s the worst thing that could happen to your business? Our guess is bankruptcy. But unfortunately, 50 percent of businesses fail within their first 5 years.
It’s a worrying statistic.
To ensure your business sees life past its fifth birthday, it’s important to fight debt off whenever it rears its ugly head. It’s a sickness that saps the lifeblood of your business (think cashflow).
But you probably already knew this. Debt is bad. No news there perhaps. The question is – what steps can your business take to pay off debt, fast?
This article has all the steps and advice you need to do just that, so your business can return to good health and you can sleep well at night.
Let’s jump in.
What is your business’ financial situation?
The first thing to do is to get your head out of the sand. It’s hard to make progress cutting debt if you’re ignoring aspects of your business’ finances, and chances are, you’ve been doing just that if you’ve been racking up debt.
Talk to your accountant, print out reports, and look at all your incomings and outgoings. You need 100 percent clarity about your business’ financial situation, and how you’ve accrued the debt you have.
Build a plan based on your situation
Hopefully, establishing your financial situation will highlight areas to address. It’s going to take some soul-searching. Each business has different strengths and opportunities for improving their cashflow and reducing debt.
Look at every area of your business and consider how you could change it to reduce debt. Is your payroll higher than average for your sector? Consider hiring an intern to increase productivity without increasing the expense of payroll.
Ask yourself the important questions and build a plan that suits your business. The rest of this article will give you more ideas for what you can add to this debt-reduction plan.
Cut back on expenses
Decreasing your expenditures is a straightforward way to improve your finances and pay-off debt. It takes time and energy to create new products and find new markets but cutting back a little can be done quickly. For this reason, cutting expenses should be you first port-of-call.
Here’s a detailed guide that has everything you need to know about cutting back.
Ask your creditors for help
There’s wiggle room when it comes to talking to creditors. So, give them a call and see if they can help you. It doesn’t help to see them as the evil enemy – get them onside and everyone’ll be happier.
Ask your creditors if they can lower the interest rates on your debt. Explain your situation to them and convey how hard you’re working to get the business in order so you can pay them back.
Think of it this way – it doesn’t hurt to ask. The last thing a creditor wants is for you to go bankrupt and for them to get nothing, so build bridges and ask for their help. Here’s a great guide on how to prepare to talk to your creditors from Wells Fargo.
Automate repayments and build a timeline
You’ll feel better when you have a timeline for getting out of debt. If you can make it SMART, all the better. Then, you can work backwards and figure out the repayments you’ll need to make each month. And if you’re serious about getting out of debt, you’ll want to set up direct debits, so that money goes out automatically.
There’s no reason to leave it to your future-self to decide to make the decision to repay money. Indeed, you shouldn’t rely on this, because things come up and life happens. Instead, automate it, and turn your attention to growing your business.
Expand into new markets
The ballsy approach to paying off debt is to simply grow your business so that you can pay-off debts faster. Why worry about pinching pennies, when you can make more?
Expanding into new markets can be the fastest way to grow your business. It’s not creating a new product of service, or going from zero to one – it’s building on what you know.
To decide whether to expand or cut costs, look at your business strengths, and don’t take anything off the table.
Look into debt consolidation
If you aren’t familiar, debt consolidation is when you combine multiple debts into one so you can enjoy a lower interest rate. It’s not only a clear way to reduce the money you’ll have to repay, it’s also a way to simplify your finances.
This makes it ideal for the small business that perhaps doesn’t have a full-time account who’s able to effectively manage a complex financial situation and multiple debt repayments.
For heaven's sake, use software
If you aren’t using software to make your business more productive and cost-efficient, what are you doing?
Business is hard enough without being shackled by debt repayments. Take the advice in this article and work your way out of debt so you can focus on the more important things, like growing your business and enjoying life.
For more help on how you can streamline your HR to make your business more efficient, download our free guide.