5 Tips to Help You Manage Small Business Debt
When it comes to running a business, some amount of debt is par for the course. When debt becomes unmanageable, however, it can torpedo a company's viability. If your small business is struggling with debt, the following tips can help you get back on track.
Take inventory. Sort through your debts by monthly payments and interest rates. This should include everything from credit lines and business loans to business credit cards and any outstanding vendor debts. By taking an accurate, detailed inventory of what you owe, you can better prioritize which ones to pay off first. Ideally, you should begin with whichever debt comes with the highest interest rate.
Cut costs and free up cash. It may not be possible to start paying off your debt until you determine why you are in debt in the first place. Open your books and identify which parts of your business are anchoring your financial trajectory. If customers are taking too long to pay, you might need to ramp up your collection efforts. If expenses are too high, you can look for ways to cut unnecessary costs, such as office space or on-site staff.
Sell off assets. Really think about whether or not you need certain assets to effectively run your business. If you can go without certain things without sacrificing the quality of your service or product, sell them. If you can sell off a piece of expensive equipment and replace it with a less expensive, used version, do it. If you are heavy on assets, this can be an effective way to scare up enough money to make a sizable dent in your debt.
Sit down with creditors. Although the prospect may fill you with anxiety, it's generally a good idea to honestly explain your financial hardship to your creditors. Most of the time, they will be willing to work with you to avoid the risk of losing money should your business go bankrupt. See if the creditor has a hardship plan that might provide better payment terms. If not, ask if the creditor will provide you with a one-time payment plan or reduced settlement amount. If you are able to secure an agreement, make sure you will be able to meet your end of the bargain before signing off on the deal.
Consolidate. It can be very difficult to juggle multiple outstanding accounts without causing serious damage to your company's credit rating. By consolidating your loans into a single payment, however, you can reduce monthly costs without damaging your credit. Ideally, you would like to consolidate multiple short-term loans into a single long-term package. Just be sure you will be able to live with the interest rate, since many consolidation loans come with initial low rates that balloon after a specified period of time.
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