Debt can be seriously damaging for a business. In fact, taking on too much debt, and not having the financial means to pay it off, can force businesses to shut down, which can be devastating for business owners.
It’s not uncommon for businesses to have some types of debt, bearing in mind that many need loans and investors to provide the funds to start it in the first place. However, when a business is constantly borrowing just so that it can stay afloat, then there is a serious issue.
Debt doesn’t have to spell the end for your business. To help struggling companies take control of their finances, here are a few useful tips to help you how get your business out of debt.
Raise Extra Revenue
Having a lot of business debt is in many ways far more complicated to handle and pay off when compared to personal or consumer debt, however, there are aspects of the situation that could make business debt a little easier to manage. This is because, unlike personal debt where the individual usually has a set salary, a business has the potential to increase revenue and bring in some extra cash to pay these debts.
This means that instead of only having the option to cut expenditure and save money to try and afford to pay off debts, a business can instead work to raise revenue. Of course, the only issue with this is that raising revenue is a lot easier said than done. Despite this, there are some techniques and tactics businesses can implement that are highly likely to provide a boost in revenue.
One such tactic is to implement promotions and discounts on your products so that there is a bigger incentive for more people to spend, resulting in both a cash injection as well as an increase in the customer base who may return and become regular customers. This idea is particularly useful if you have a lot of inventory, as it helps to shift these assets and create value, which they currently are not when taking up space.
Another good idea to raise revenue is to also invest in a good marketing program to get the attention of more potential buyers and to set up referrals to increase your business’ trustworthiness.
Chase Up Late-Paying Customers
A successful business needs to have a consistent cash flow in order to be able to fund overheads and pay off debt. This means that whenever a business deals with customers that take a long time to pay, it slows down the flow of cash and puts the business in jeopardy. For example, it’s not uncommon for a business to complete a project or contract, turn it over to the client, submit an invoice and then have to wait up to a month for the client to pay up. This obviously isn’t ideal, and can be even harder to plan around if they take even longer than initially thought.
That’s why it’s a good idea to make a list of outstanding invoices and to then contact all the people on that list to nudge them to pay up. Some still might not be able to pay just yet, but there’s a chance that others will budge, meaning that you can use this income to tend to your debts.
Furthermore, if you’re looking for a way to encourage faster payments, you can write in time-sensitive discounts into your contract. This means that you can offer something like a 10% discount to the total price if you receive the money within a week of the invoice being sent, and then make them pay full price if too much time has elapsed. This extra saving can be enough to get regularly late customers to be more punctual and help your business maintain a consistent cash flow.
Cut or Delay Expenses
The first two points were all about helping to get money into a business to pay off debts, but there are also various things a business can do to save money to help with debt. The first is to cut small business costs. This is where you shave off some expenses that aren’t super critical for your business to survive and operate. This can be pretty hard to do because as a business owner you’re already only spending on things that you think are important. This means that a business owner needs to be a little bit ruthless in their assessment to help them out. It’s worth mentioning that letting staff go should be your last resort, as staff are a business’ best asset and are most critical in increasing revenue. Instead, consider any subscriptions to software, or technology you use, and any marketing campaigns that can be pulled for the time being, and even the prospect of downsizing the office space.
It’s also important to realize that although cutting smaller expenses is easier to do, due to them having less of an effect on a business, it’s always better to cut a large expense, as this can help you save some serious money.
Another thing that businesses can do to save money to help them pay a debt is to delay costs. This means that instead of paying for a product or contract straight away, you can instead use up all the time you have allotted to make the payment, giving you more time to build up the funds needed. However, when following this tactic, it’s important to not push your luck and try to delay costs past their deadline as this will fracture your relationships and negatively affect your business. It can also, in the worst-case scenario, force these suppliers to file a lawsuit against you, so that they can get their money. If this happens, it’s important to get the help of debt lawsuit lawyers as they can aid you in this situation.
Sell Off Assets
Although more and more business are operating on a leaner model these days, due in part to how you don’t need as many to start a business online for example, most businesses still have at least a few. Assets are things that a business owns, and can include items such as computer equipment, a vehicle, or raw materials, and what’s useful about these assets is that they can be sold to help businesses drum up money to pay off debts. All these assets represent money that is tied up in your business, meaning that if you free it up, it can be used to pay off expenses and critically debt.
The only issue is that many business assets are crucial for operations, so it may still be difficult to raise money this way, as you simply can’t afford to get rid of assets that are needed to make your business functional. If this is the case, then there is the option of getting a ‘sale and leaseback’ agreement. This is where you sell all your assets and equipment to bring in some money so that it can used to pay a debt, and then immediately rent that equipment back. This means that you’re still able to use the equipment and benefit from it, while getting money from it. This should only be used as a last resort, however, due to how you have to keep up with the regular payments to be able to use the equipment, but it can be really helpful if your business is in a pinch.
Prioritize Loans to Pay Off
Now that your business is starting to get money in after implementing these tactics, it’s now time to figure out where exactly you’re going to put that extra cash. If your business has multiple loans that it needs to pay off, then its important to figure out which ones are the most urgent and which ones are the most useful to get out the way. When paying off personal debts, it’s best to pay off the ones with the highest interest rate first by following the snowball technique, however, this might not be best for a business.
Instead, the first debts you should focus on paying are the ones that could affect your key business relationships if you fail to pay them, particularly your staff’s salaries if you’ve been unable to pay them. Next on the list is to pay off debts to key suppliers, as you don’t want them cutting you off, followed by debts that could incur serious penalties if you don’t pay, such as tax. The reason these debts are the most important to pay is because failing to do so can seriously affect your reputation, which a business needs to protect at all times. This is because a ruined reputation will make it more difficult for a business to attract customers, partners and even staff, meaning that it’ll be a lot harder to make the business successful and profitable in the future. Once these types of debts are clear, you can then rank the others by interest rate as you would personal debts, and then slowly but surely you’ll be able to pay them off, and when each one is paid off, it’ll make the next debt even easier to pay.