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Are you currently being weighed down by the amount of debts your small business owes, whether in the form of compounding business loans or credit card balances?
You are not alone.
Over 80% of small businesses in the USA alone are reported to be in debt in one way or another. However, this compiling burden and pressure from different creditors are likely to end up as debt fatigue for you and your venture. This fatigue will likely lag your business behind putting you even further in the hole. The only solution from this is to change your strategies and habits and dig your business out of the situation. As a result, we have come up with 5 practical steps to get your business out of debt.
1. Analyze the debt position of your business
The first step will be to sort out your debt sources, including all the business loans, credit balances and all due payments to your vendors. At this stage, you will think of anything that might affect your finances, may it be loan statements or bills. Put them on the table and start analyzing each one by one and classifying them by amount and urgency. At this step, it is also advisable to get your credit report to examine whether banks have classified your score as either good or bad credit.
2. Prioritize your Debt Repayment Process
After going through your credit report and scanning your debt details, the next step will be to arrange them according to their liability impact. This means tackling the high-interest loans first, nondeductible credit second, and low-interest debt last. However, if you have personally guaranteed debt with a creditor, vendor or supplier, then that becomes the first priority when you start clearing the liabilities. It is also important to carry a single emergency credit card and keep all the other cards away. This is a disciplined approach to ensure you don’t end up with more debt and help you keep up with the repayment plan.
3. Renegotiate with the lenders and creditors
It may be the ideal time to go back to the deal table and renegotiate the repayment terms. Alert the creditors and lenders of your current financial hardship and draft better repayment terms. The terms may be an extended repayment period or lower monthly payments. You will be surprised that other creditors would be willing to reduce the total balance if you paid now. On the other hand, lenders such as banks may be willing to delete your credit profile as bad credit if you provided a viable repayment plan. Just make sure you have analyzed your new repayment plans and, in a position, to fulfill them. So, having the right communication, providing viable repayment terms and fulfilling your end of the bargain will go a long way in reducing the debt fatigue on your business today.
4. Revisit and rebuild a better budget for your business
You can make a good repayment plan and keep offloading your debts, but broken budgets will keep you in a debt servicing cycle. As a result, create a business budget that relates to your current financial situation. Can your business revenues cover the recurring bills? Can it service the compounding interest rate? such questions should guide you when devising a budget for your business. After allocating a substantial amount of funds for the above expenses, then the remaining amount can go back to the business. In this case, having a solid budget based on the business capabilities will go a long way in digging you out of the situation.
5. Cut Unnecessary costs
You will need to breakdown every purchase, cost, and expense. Ensure they are necessary and acquired at the best price for your business. You should also consider selling off some unnecessary assets in your premise. This may include old computers and other machines that may be taking a considerable space in your office. As a result, there is a compounding effect of freeing up some cash and more office space. You can even go further and rent a smaller office space depending on your business operations. Another idea would be to look for a renting partner, share the working space until your business stabilizes back again. It would also be wise to take the expert’s advice and partner up with other businesses in your industry. In this case, you can share similar resources such as human resource and internet services. This will immensely reduce your operation costs and save up some cash to service your debt.
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