4 Tips to Better Manage Your Small Business Debt

Poor credit management and personal use of business funds are the top reasons why most small businesses fail. With time, a company may lack the money to cover basic expenses such as the payroll, and it quickly starts to spiral into bankruptcy. Loans are essential to growing a business. However, too much debt and poor debt management can be the reason you close shop. To avoid such a scenario, here are some tips to help you manage your business debt.

1. Consolidate Your Debt

If you have several types of loans such as a business credit card, an unsecured loan and a line of credit, you can group them into one. Debt consolidation refers to when a lender takes out all the different debts you have and combines them into a single low-interest loan. Debt consolidation allows you to manage your debt with just one payment. It also reduces the time you spend keeping track of your debtors and prioritizing debt, freeing time to focus on the core issues of the business. You will also enjoy lower interest rates, meaning your monthly cash outflow will be less compared to before debt consolidation. However, debt consolidation makes it easier to fall back into debt.

2. Create a Robust Business Budget and Reduce Expenses

Before you can start working on proper debt management, it is essential to get a good understanding of your business’s financial situation. Your current financial statements will help you come up with a budget. The budget enables you to identify the income sources, varied expenses, and fixed costs.

With a budget in place, you can proceed to figure out which operating expenses are vital to the business operation and which can be canceled. Some of the costs you can cut include subscriptions that are infrequently used and memberships. You can also reduce your monthly rent by either downgrading to smaller offices or subletting unused office space. Reducing your expenses is a faster way to increase cash flow.

3. Talk to Creditors and Lenders

If you have been falling behind on payments, you should prioritize debt payments by determining which suppliers and creditors should be paid first. Negotiate for lower interest rates or a payment period extension with your lenders. If you have a long-standing relationship with suppliers, or you purchase bulk orders from the same supplier, you can always negotiate a discount. Another great idea is teaming up with other small businesses to put in a larger order and enjoy discounted prices. Stay positive when discussing favorable payment terms with your creditors and lenders. Help them understand that it is in their best interest to accommodate your request because if the business fails, they get nothing. Be proactive and approach creditors before you start falling behind on payments as they may be more likely to take you seriously and agree to your terms.

4. Increase Business Earnings

Even though you are focused on paying back the liabilities, consider growing your business. A boost in cash flow by an increase in earnings can help the business in the long term, even after you finish paying back your debt. One way of increasing your earnings is by practicing collection strategies that shorten the period it takes for you to receive your money. Also, delay paying off suppliers until the end of the days’ payable outstanding.

Even though the business is struggling, find ways to increase revenue. To increase revenue, you can use cheap marketing methods that do not require you to break your bank. They include using social media to promote your products or hosting community events. Another way of earning extra income is leasing space in the office and equipment that the business does not use at the moment.

Debt can be ruinous to a business, especially if it is not well managed. Business debt does not have to be stressful. With the above four tips, you can start proper management of your debt.