How to Manage Small Business Debt

As a small business, keeping your head above water and planning for growth can be a delicate balance. There’s a certain truth to the saying that you’ve got to spend money to make money, but if you can’t cover your expenses every month (rent, payments to suppliers, salaries, etc.) you’re going to find yourself in some serious hot water.


Even if you’re doing everything right, loans and debts are an almost inevitable part of running and growing a small business. The question is, how can you manage your debt so that it doesn’t spiral out of control? While it may be tempting to bury your head in the sand, the key is to be intentional and take charge of the situation, right from the start, getting a plan in place that keeps your debt manageable.


1. Get Organized


It’s easy to picture your debt as one big, messy cloud, looming over your business, but if you break it down into individual debts, creditors and payments it will feel far less overwhelming and unmanageable. Make sure that you know exactly who you owe, how much, and when payments are due, and then you can start to prioritize and plan ahead.


2. Review Your Cash Flow


If your monthly income and expenditure have become unbalanced, take a step back to look at where the extra expenses are creeping in. You can then make adjustments to your budget so that you can plan for the future without compounding your debt even further.


3. Cut Your Costs


You may be able to identify areas for potential – and fast – savings, so that you can clear your debt more quickly. Do you have any unnecessary expenses that aren’t essential to the running of your business? For example, are you paying for subscriptions or leasing equipment that you could live without for a while? Can you negotiate lower rates or deals from suppliers, or get better rates by switching suppliers? You could even think about joining with other small businesses to order in bulk, for better value.


Rent is likely to be one of your most significant costs, so it’s worth considering whether you can downsize or downgrade your workspace, even just temporarily? You could also explore the option of sub-letting some of your space to another individual or small company.


4. Boost Your Revenue


Consider running special promotions or discounts on your popular products or services, to boost sales in the short-term. You should also be sure to chase down any unpaid invoices, so that you’re not paying the price for other people’s delay or disorganization. You could even offer a discount for paying upfront so that your accounts receivables stay healthy, which will allow you to make bigger repayments each month and clear your debt sooner.


5. Negotiate a Payment Plan


The main thing for your creditors is that you pay up, so – often – they will be open to putting a realistic plan in place that will make it possible for you to clear the debt. Having this frank and practical conversation, rather than offering empty reassurances, is the best way for both of you to manage the situation and get what you want out of it.


Some creditors will offer flexible repayment terms, including extending your loan over a longer period of time to reduce your monthly payments and mounting interest. You may also be able to agree on a loan consolidation program, which groups multiple loans together into a single monthly payment. This is much easier to manage and incorporate into your budget – and much less intimidating!


The bottom line? Be proactive, and be strategic. It’s not necessarily about stripping your costs down to the bare minimum in order to clear your debt as fast as possible, but it’s about managing your finances and structuring your debt in a way that is smart and sustainable. You still want your business to grow and thrive, and that doesn’t come cheap, but with some shrewd planning and negotiation your debt doesn’t have to hold you back.


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