Many companies, especially small ones, find that it is necessary to take out debt at some point during normal operations. Debt might be a credit card, a loan, or a line of credit. This can help you set up a business, finance future growth, or purchase another company to merge with yours.
But if you have a lot of debt, you might have to ignore potential opportunities to expand your company or reinvest your money. If it is hard to pay back your debt, your financial health might be jeopardized. And at Scura’s Attorneys, we know that if you can’t keep your debt under control, you might face bankruptcy. The good news is that you can make a positive change in your debt.
1. Knowing How Much Debt You Have
It is easy to overlook how important it is to have an inventory of what you owe. Before you can get out of debt, you should find out the total amount that you owe. Make a list that includes every form of debt you have, such as credit cards or loans. Perhaps you have outstanding vendor payments or high interest rates.
When you are creating this list, make sure that you include the interest rate, creditor name, and the amount of each debt, so you can take out the uncertainty from this process. You can use a spreadsheet to keep track of everything.
Once you have figured this out, you can create a plan so you can pay off your debt. After you have created a plan, begin paying it off as soon as you can.
2. Keeping Your Priorities Straight
Once you know how much you owe, you can make a list of your priorities, so you can take on some debts first. You can start with the highest interest one first, especially if you have flexibility. For example, pay off more than just the minimum with credit card debts. And check that you can care for the critical expenses of your business while paying off your debts.
Figure out approximately how much income your business will be taking in for the next year or so and ensure that you have enough to run the company with a bit of extra. Revise the budget if you need to.
3. Getting Extra Revenue
There are several ways you can increase your revenue, even if it is only in the short term. For example, you might offer a sales promotion on services or products to bring in more clients. Coupons can encourage people to buy more from you, and loyalty programs can increase customer retention.
Look at the assets on the balance sheet, which is money that is currently invested in your business but could be freed up. For instance, if you have unused inventory, you might be able to sell it off. Or you could vacate a building and lease that to a renter.
4. Avoiding Extra Costs
Often, companies take on debt so they can finance expansion and growth. But that might not be the best option if the expense is not necessary or critical to your business. For example, you might have taken on a loan to hire new employees who did not increase your bottom line.
You should identify the unnecessary costs and then see where you can cut back. For example, can you move to a smaller space? Or can you get rid of unnecessary equipment? By analyzing your business goals and needs, you can see which costs are unnecessary and minimize them.
5. Following Up with Customers
Every company depends on clients to keep going. However, if a client does not pay on time, they might break your business. If your industry usually operates on late payments, then you might not be able to change that much. But if certain customers are often late, or others have a long-term payment plan, you might want to look into this.
Make a list of all outstanding invoices, which are bills that have been sent to customers but not been paid. Contact those clients, beginning with the ones who have been the latest in paying you back.
If you have a customer who never pays on time, think about whether you can discontinue that relationship. Consider how doing so might affect your bottom line. This should be the last solution because you might lose potential revenue in the future.
Come up with a method of reminding your clients when they need to pay. Consider automatic text messages or emails near the deadline to gently remind them. However, too many reminders might annoy your clients.
6. Negotiating Payment Terms with Creditors
If you need some more time to pay off your debts, try to be upfront with your creditors. Ask if you can have more time to pay off the loans and see if you can get a more flexible payment structure. If they agree, you will need to fulfill their new terms and avoid defaulting on them.
7. Negotiating Payment Terms with Vendors
Consider negating the payment terms with your vendors. Check if they can give you more flexible terms. For instance, it might help to pay back a couple of weeks down the road. Or you might be able to pay at certain times for several deliveries. You are more likely to be able to negotiate if you already have a good record of paying on time.
Around the world, nearly every company has gotten into debt for one reason or another. There is no reason to consider debt a bad thing. With a reasonable amount of debt, you can grow your company while expanding your operations.
Just remember if you borrow too much to pay back, you might find that the payments are out of control. The good news is that debt does not need to be crippling or cause bankruptcy. The key is to manage it well and keep an eye on your future.