6 Easy Ways to Get Out Of Business Debt
In business, debt is necessary. As an entrepreneur, you will most likely need more money at some point to hire more employees, buy new equipment, expand your business or even upgrade your existing office space. Too much debt, however, can stifle your cash flow and put your business at risk of closure.
With the drastic rise in prices of almost everything related to business, business owners are finding it difficult to stay afloat, and most are straining under the massive weight of debts. Many businesses are forced to apply for bankruptcy to salvage their companies. Such a move may be an easy way out, but has dire consequences on business goodwill and credit scores.
Before making the decision to apply for bankruptcy, consider the following strategies to help dig your business out of debt.
1.Take stock of your liabilities and prioritize repayments
To lower the risk of filing for bankruptcy, take inventory of all your debts. Once you establish whom and how much you owe, sort the debts out according to their interest rates. Prioritize those that are likely to accrue the highest interest rates if you delay the repayments. This process will help you sort out and pay your debts without incurring more expenses.
2. Boost sales
After putting a debt management plan in place, boost your sales, as the income will be used to pay off the debt. You can increase sales by:
- Taking advantage of social media – Many customers are increasingly turning to online platforms whenever they want to purchase something. Advertise your products aggressively on social media and make sure you respond to customer queries on time. Also, ask your clients to give positive reviews of your products on your social media pages.
- Rewarding your loyal customers – You can have a loyalty program to reward your consistent customers. This move will increase customer satisfaction and will help retain them. They may even end up referring more clients to you!
- Raising your prices – Study the market trends and increase your rates strategically, taking care not to lose your loyal customers in the process. You can do this by introducing discounts on large orders (volume discounts), free shipping and other value-adds related to your product.
3.Cut out unnecessary expenses and improve your debt collection strategies
Your top priority as a business owner should be to cut down costs. Avoid any unnecessary spending and free up cash held up in account receivables. Talk to your debtors and shorten their payment periods. These strategies will enable you to have some money to pay off your debts when they are due.
You can cut off extra expenses by:
- Selling off unused equipment to raise more money.
- Consider downsizing to a smaller office space. Having a home office may also be a viable option.
- Look for similar businesses and share resources.
- Reduce employee costs by outsourcing services.
4.Examine your budget
If you find that you are spending more than you earn, you are not following the budget, or the budget is not workable. Draft a budget that is strictly confined to the business’s monthly earnings. Ensure that you stick to this budget and do not spend more than you make. Sticking to a budgetary plan is the easiest way of getting out of business debt.
5.Pay off your debts
There are no shortcuts when it comes to dealing with debt. If you want to get out of business debt, you have to prioritize repayments. Start by paying off debts with high interest rates, as you will avoid the extra expenses accrued from penalties.
6.Negotiate with your creditors
Talk to your creditors, let them know about your financial situation, and ask for a hardship plan with better payment terms. If they are adamant about debt repayment, request a reduced settlement amount. If they accept your request, make sure you honor your word and pay your debts. You can also talk to your financier about loan consolidation.
Too much business debt reduces the net worth of any company. While it may be difficult to avoid liability in business, you should exercise caution while borrowing. Identify those things that put you into debt and tackle them head-on. Lastly, prioritize debt repayments so that you can lower the risk of closure or filing for bankruptcy.
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