If you aren’t vigilant as a business owner, small business loans and debts can pile up very quickly. This can cause big problems that affect different areas of your life: from anxiety and stress to the business’ eventual shutdown.
Even if you haven’t gone through it yourself, this scenario might sound familiar. This is because it’s pretty common.
In a study conducted by the research-based firm, Gallup, around 49% of business owners grapple with managing and paying off debt. Although 49% is significant, this isn’t really a surprise to me–paying off loans and other debts is one of those most difficult challenges that any business owner has to face.
One of the loopholes in the debt collection system is to file for bankruptcy. While on the surface, this might seem like a solution, it also has a lot of downsides that could do worse for you in the long run. First, the fees are very expensive, amounting to almost US $ 7-8K. It could also jeopardize your future ventures because your personal and professional credit standing and the record will be marked permanently.
We have debt collection partners all over the world to help with international problems. Here are some tips from Scott with JMA Credit Control in Melbourne, Australia on how to deal with your debts.
Increase Your Cash Flow
This might seem like basic advice, but you’ll be surprised at how many business owners take this for granted. Make sure you sit down and create an action plan so that cash flow issues are few and far between. This can create a lot of improvements that you’ll feel immediately.
As part of cash flow, getting paid can also be a struggle for businesses trying to improve cash flow. If you’ve got slow-paying clients or they simply won’t pay, then consider a debt collection agency that can assist you with getting the money you’re owed.
Increase Your Productivity
Every business has at least two processes that they can make more efficient. Integrate technology into your practices–if there are operational procedures that you can automate, then automate them. Train your people to handle things well so they get things right the first time. This will cost you less in the bigger scheme of things.
Improve Your Marketing
Improving your marketing affects all the other aspects of your business, including cash flow and productivity. Remember to always work smart and set goals that follow SMART objectives–specific, measurable, achievable, realistic, and timebound.
When you choose proven strategies that bring in revenue, you can gain new customers without breaking the bank.
Renegotiate Vendor Terms
Simply sitting down and having a conversation with vendors can make a big difference in your savings. A lot of suppliers will allow an increment of time after delivery before you pay off the entire amount.
This makes payments per month lighter, giving you space in your budget to pay for your debts. You get a turnover in your stock before having to shell out any cash. The trick here is to be very diligent–don’t slack off and constantly look for ways to improve efficiency.
Improve Inventory Management
Clutter costs you money–it might not seem like a lot, but when you have things scattered around the office and don’t use them, you’re spending for things to take up space. By being very aware of business demand, you can limit supplies that aren’t used. Make sure you manage excess inventory by tailoring stock to sales.
Research Finance Options
When looking for funding for your business operations, make sure you do your research on finance options–look around before you decide. By being proactive and doing your homework, you can find loans and investors with the terms that are reasonable and in sync with what you need.
You should also look into how realistic the terms are, given the state of your business. Calculate your Debt Coverage Ratio before you sign any agreements.
The quickest, easiest way to pay off debts that seem to be growing quicker than anticipated is to reduce business wastage. Wastage is usually caused by operational inefficiencies, poor planning, and unnecessary costs.
By eliminating these common causes and addressing why these problems exist, you can cut your losses and improve efficiency. This gives you more monetary freedom to pay off debts.
Manage Your Debts
When business debt starts to pile up, a lot of business owners will choose to ignore it instead of facing the music. Acting like the debts don’t exist isn’t the answer.
You might think “I’ll just focus on growth and everything will sort itself out”–the truth is that it won’t.
Managing your debts is one of your responsibilities as a business owner and failure to do so will cause the company’s downfall.
Face debt head-on. Find solutions and strategies that are applicable to your situation and implement them as soon as possible.
Consolidate Your Debts
If you have a lot of loans with varying interest rates, it’s a good idea to ask your bank if you can consolidate them into a lump-sum and apply the lowest interest rate. Make sure, however, that the money you’ll save on the interest is bigger than the money you’ll spend having the loan consolidated.
Pay Off Your Credit Cards
Credit cards have really big interest rates, at times over 20%. This interest rate will pile your debts faster and faster–prioritize paying off your credit card debt because it builds monthly. Pay this off as quickly as you can. If you’ve had your card with the bank for a long time, you might even be able to negotiate your payment terms with them.
If you don’t ask, then you’ll never know.
Even if the bank disagrees to give you what you want, you can often ask for a transfer that will give you a lower interest rate of about 12%. By finding small hacks like this, you can lower your debt and start paying off loans within a shorter period of time.
These debts won’t go away even if you ignore them. Your best bet is to address them and find a strategy that will work for you. Create your business debt plans and put them into action today!