Business debt is not an easy issue to deal with, especially if you’re worried about creditors taking you to court. Regardless of the nonstop phone calls and letters, you don’t have to file for bankruptcy unless it is the ultimate last resort. Before contemplating that alternative, you can try our strategies for paying off your debts and getting back on your financial feet again.
Assess Your Business Debt
Before you take on the task of debt reduction, you should line out how much you owe and review the loan terms with your lenders and contract agreements with your vendors. These measures, along with figuring out your total debt will help you to get a clearer picture of what your financial future might look like.
Calculate Your Total Debt
First, you will need to calculate your total debt by first adding up the balances of all your long-term debts. Next, you’ll need to list your short-term debts and get the sum of all their balances as well. From there, you’ll add the two sums together to get your total debt. These figures can help you to make repayment plans and to determine your budget.
Evaluate Interest Rates
Keeping an eye on your interest rates not only helps you to better understand how long it will take to pay off a loan, but also lets you know how much risk you’re dealing with, considering how much interest rates can impact your cash flow. When you evaluate current interest rates, you can make clear decisions about whether you should try to refinance a loan and if you should steer clear from borrowing money in the near or far future–especially with today’s trend of increasing rates.
Impact on Financial Goals
There is one simple truth: debt always impacts your financial goals. At the same time, you can still rein in your spending while negotiating with your debtors. Additionally, Once you have listed all your debts, reexamined their terms, and compared them to your current cash flow, you can adjust your financial goals accordingly. In this regard, you can still bring about positive outcomes.
Create a Debt Reduction Plan
After gaining a clear understanding of how much you owe, you can start working towards paying down your debt and gaining more control over your financial future.
Set clear, achievable debt reduction goals
Reducing your business debt won’t happen overnight. So setting achievable goals for paying it down or paying it off is crucial to the whole process. You can start by setting goals for the next quarter or the next six months for paying off debts that have extremely low balances. Plus, you can set long term goals that will have a positive impact on your finances, such as finding a more affordable vendor.
Prioritize high-interest debts
There may be times when you have to start with high-interest debts even though they have a sizable balance. While this tactic might seem counterintuitive, it’s actually a long-term money saver. When you get the high-interest loans out of the way, then paying off the low-interest debt will get easier. Plus, if the situation presents an opportunity to negotiate the interest rate, then making some payments on time might tilt the scales in your favor.
Allocate a portion of your revenue for debt repayment
Another vital strategy is to always designate part of your revenue for debt repayment. Even when you have the most amazing, profit-making month, using the extra cash to pay debts down instead of spending it will save you a lot of stress later on. Plus, any extra that you can pay will get you that much closer to being debt-free.
Increase Revenue and Cut Costs
This next strategy is tricky–yet possible to an extent. When you look at cutting costs, you have to do so without sacrificing your brand’s integrity and quality. If your business can put out the same excellent product or service that won over your clients, you won’t experience a net loss. Consequently, you might have to adapt your marketing, offer something that your competition is not, or raise your prices just enough to bring in more revenue. This can be done by utilizing more cost effective supply sources and running your operation at peak efficiency.
Explore new revenue streams or products
Yet another challenging step toward financial freedom involves coming up with additional revenue streams and products. One example, if you have the extra space, is to rent out or sublet your building or office. This can bring in extra money that can go towards paying down your debts. Also, if you can come up with an extra service (like delivery) for which you would charge a fee or a new product that doesn’t cost a lot to create, you can generate more income. You might even consider broadening your customer base by marketing and offering your product or service to more locations. Or if you’ve gained a loyal following in your niche, you can develop courses in your field or publish books to bring in more passive income. Just make sure to do your due diligence when it comes to cost and whether you have the clientele to make such a venture succeed.
Optimize your pricing strategy
Pricing is not a comfortable topic in today’s world, but it’s necessary. Furthermore, you’re looking at the daunting task of optimizing for promotional, discount, and starting prices. To meet this challenge, you’ll need to gain a firm understanding of your clientele and what they want and how much they’re willing to pay for it. Yes, this will involve gathering and breaking down data along with ensuring that your product or service provides something valuable to them. With information on hand, you start adjusting your pricing over time which in turn, brings in more revenue while using your resources wisely.
Identify and eliminate unnecessary expenses
As you go through the aforementioned procedures, start identifying and eliminating the “money pits” that are sapping the life out of your finances. Part of applying a solid business finance plan is to cut costs where you can without skimping on quality and customer service. So, look at suppliers, your energy and maintenance costs, and every aspect of your operation, and start eliminating unnecessary expenses.
Negotiate with Creditors
An additional common practice in the realm of debt management is negotiating payment terms and payoffs with your creditors. In some cases, you might offer a lump sum for a payoff that’s slightly less than the balance if you can afford it. In other scenarios, you might need to ask for a different due date for the bill when you have an increased cash flow. Just be sure to review contracts and your financial situation before trying to negotiate.
Debt Consolidation Options
In addition to the tactics mentioned above, making one payment, instead of several, gives you a sure path to financial freedom. Debt consolidation, when you’re working with reputable and experienced professionals, can provide a viable solution since your creditors will still get paid while you work on improving your business’s financial health.
FAQ's
How to create a debt management plan?
This process involves adding up your long and short-term debt to see exactly how much you owe. From there, you can see which debts need to be prioritized and which ones can be negotiated. In the meantime, you’re also cutting back on spending or at least avoiding accumulating more debt.
How to build good debt management plans for my business?
How does a debt management plan work?
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