It can be a terrible feeling to have to deal with a mountain of debt. When the debt threatens your business, it can only feel worse. Fortunately, it’s possible to take steps to bring your debt under control and quickly improve your cash flow. If you’re a business owner and are struggling with small business debt, the following steps should help you get your business back on track.
1. Work on your budget
You need a thorough understanding of your financial situation before you can begin addressing your debt. You need to find out if your budget has enough room for your expenses.
A well-drawn business budget can help you determine what your fixed costs are on a daily, monthly, or annual basis, and can help account for variable and unforeseen expenses, as well.
If you don’t have training as an accountant, you need to find a professional. If you are unable to hire one, a nonprofit like the SCORE Association offers workshops, mentoring and advice on how to budget for business. You can take advantage of these resources. Accounting software such as QuickBooks can help, as well.
Whatever method you may use, a full understanding of how your budget works is the first step that you need to take on your way to eliminating your debt.
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay their invoices, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
2. Cut back on your expenses
Once your financial statements help you understand how money flows into your business and out of it, it’s time to identify what expenses aren’t absolutely necessary. You may be able to identify subscriptions and professional memberships that you don’t really use. You may be able to negotiate with vendors to get them to lower their prices. Look through your budget to find out what kind of expenses contributed to your debt in the first place, and try to lower them.
You may want to outsource business tasks to save you time as well as money. Many small and mid-sized companies often outsource marketing, bookkeeping, accounting, and legal roles. Consider factoring your invoices for access to immediate capital as well as streamlining your accounts receivable functions.
3. Send Out Invoices Immediately
Unpaid client invoices are one of the biggest cash flow killers for small businesses, which is why it is crucial to have consistent payment and collection policies in place and to enforce them. Some business owners choose to conduct commercial credit checks before extending payment terms, which can help you avoid taking on risky clients. Others simply lay out clear consequences for late payment, whether it’s in the form of percentage-based late penalties, not continuing work on the project, or passing the debt off to a recovery firm. Once you’ve established internal guidelines for handling collection of payment, it’s important to stick to them. It’s also essential to send reminders or make phone calls about payments that are due right away.
4. Begin paying with cash
If you continue to use the credit card or line of credit that your business has, you will only add to your debt load, and pay interest on it, as well. It’s a good idea, then, to turn to cash to pay your bills, rather than use credit. Using cash can be a great way to force yourself to think carefully about what you’re spending on, and only buy what you can afford.
5. Lower the interest rates on your loans
If you have a large balance on a business credit card that charges you a high-interest rate, you should consider opening a new business credit card with a low APR, and transferring your balance to it. If you owe money to a bank, you should get in touch with your representative at the bank and ask them to lower the interest rate.
In some cases, you can apply to your bank or credit card issuer for a hardship plan. You need to put together financial statements and tax returns that prove that your business is going through a rough patch. The lender may be willing to waive their fees and lower their interest rates for a few months, moves that may help you pay off what you owe.
If you have a number of loans with different lenders, you may be able to consolidate them. Loan consolidation involves applying for a loan large enough to pay off all your other existing debts. Then, you service just the one large loan. It can make your life easier to have just one loan to service, rather than keeping track of multiple due dates.
6. Draw up a stack repayment system
Paying the interest on your loans can make it hard for you to work down the principal. It’s important to work out a system where you apply as much of your budget as possible to first paying off the loans that charge you the most interest. Once the loan is paid off, you should attack the loan with the next highest rate of interest. It can take some work and some financial discipline to stick to such a plan. It’s the best way that you have to make efficient use of your resources, however.
7. Contact a debt-restructuring service
If you’ve tried the methods above, and find that they don’t make as big a dent in your debt as you would like, a debt restructuring service may be able to help. When you sign up to a debt restructuring service, its professional negotiators talk to your creditors and debt collection agencies, and help alter existing contracts to make it easier for you to pay on them.
While debt restructuring does cost money, it’s a far less expensive option than filing for bankruptcy, and it is better for your business credit, as well.
If the ideas here don’t work, you still have options to manage your debt. You may need to file for bankruptcy, liquidate your assets or sell your business. If all goes well, however, you will not need to take such extreme steps. You’ll be able to pull yourself out of debt and help your business thrive.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.