Like many entrepreneurs, you probably took out necessary loans to get your business off the ground and operational. Perhaps you took on additional loans after your business began to take off to fund an expansion or to take a new risk. Regardless of how your small business accumulated its debt, it hangs over your head like a storm cloud every time you look at your finances. If you want to wipe away that debt and pay it off as soon as possible, the following tips can help.
If you are trying to get out from under a mountain of debt, or even debt that’s more akin to a molehill, it is essential that you stop creating new debt or begin trimming unnecessary expenses. It can be a painful process, especially if it has an effect on your employees, but you want to make sure you’re not clearing away debt only to have it instantly replaced. By chipping away debt and truly beginning to push your business toward the black, you get closer to achieving full financial independence.
Look at the budget
Your business should have a well-maintained budget. If it doesn’t, take the time to set one. If you’re creating a new budget or are reevaluating your current one, take a look at the numbers you forecasted for different expenses and incomes to see if they are accurate. It’s possible that you’re running into debt, especially credit card debt, because you aren’t adequately prepared for things you and your business need to pay for. Diana Ransom, the former deputy editor of Entrepreneur, recommends using accounting software to keep you honest and on-budget. Your revenue needs to cover more than just your fixed costs, but it should also cover both variable costs for materials, paying off debt or saving for the future.
Bring in more money
If you want to pay off debt faster, the obvious solution is to bring in more money. NerdWallet’s Steve Nicastro recommends you consider tactics that will boost your sales and help you write bigger checks to creditors. Consider starting a loyalty program to thank your best customers and motivate them to buy more at your establishment. Another option for raising revenue is raising your prices, but it is one that should always be first approached with caution. According to the Harvard Business Review, you should have a strategy to keep your good customers happy if you choose to raise prices, like volume discounts or subscription programs. If you feel that an increase in price will negatively affect your business, it may do more harm than good.
There are many types of debt that you could be carrying within your small business. Consider refinancing at a lower rate if you are carrying high-interest debt, or consider debt consolidation if you or your business’s credit score allows for it. If a lot of your debt is on credit cards, which tend to have high interest, it might be best to pay this debt off first. You can refinance card debt or move it to a new card to take advantage of a balance transfer promotion, but NerdWallet cautions that you must always read the fine print before signing up for anything.
You have a lot of options for taking care of your small business’s debt. Talk to a financial advisor or accountant to see which of these could work best for your establishment.