4 Ways to Reduce Small Business Debt
For most companies, managing debt is a serious issue, and the data bears it out. Over the past year, an average of 25,000 American businesses went bankrupt each month, often due to their inability to repay their debts. For small businesses, the stakes are often high, and the margins between breaking even and incurring a loss are razor thin. Reducing your overall level of debt, therefore, is often critical to the success of your company. Here are four tips about debt management that can help you address the level of debt your company is carrying, and give you a fighting chance to move your company into the black.
Increase Sales and Keep Your Current Customers
You can reduce the impact of the debt you are carrying simply by increasing the number of sales your company is making. More revenue at the end of the month will help ensure you have money to cover your interest expenses, and maybe even help you pay down the principal and reduce debt more rapidly. So while focusing on your debts, make sure you are investing accordingly in your sales force as well. Additionally, strive to keep the customers you already have coming back for more; while new customers are important, repeat customers are often responsible for 40 percent of a company’s revenue.
Another way to address debt is by reducing costs in your business, and, just as you can do with increased sales, using the freed up cash to pay down your debts more rapidly. Consider some of the large costs you incur monthly in your business, such as office space rental and the utilities that support it, and consider if you can reduce them; sometimes moving to a more affordable place, or subletting unused space, can free up much-needed cash. Examine your monthly insurance payments, and see if they can be consolidated or reduced as well (while maintaining adequate coverage). Finally, eliminate any superfluous expenses, like magazine subscriptions or expensive cable television packages, and re-allocate those funds to support debt repayment.
Consolidate Your Debts
If you have multiple loans – credit cards, equipment loans, bank advances and others – it may be wise to consolidate all of these debts into a single loan. There are many advantages to this. First, it is often relatively easy to do, and many banks are organized to support businesses that specifically want to do this. Next, you can often secure an interest rate on the loan that is much lower than many of the types of debt you may currently be carrying, such as credit cards, lowering your monthly interest expenses considerably. Finally, managing one single debt repayment is infinitely easier than dealing with five or six different ones. Despite the many benefits of debt consolidation, ensure you speak with your accountant or certified financial advisor before doing so; it will be important to determine how the move will affect your credit rating, and your access to additional debt if your company suddenly needs it in the near future.
Talk to Your Creditors
Develop a relationship with your creditors in good times, and maintain it with them through the bad times. Establishing that relationship can often help you if and when you want to refinance your debt for a better interest rate; your creditors may even give you a heads up if and when you are going to have an opportunity to do so. If your revenue declines precipitously, and you are suddenly no longer to make your debt repayments on the original terms, discuss the challenges with your creditors; you may be able to renegotiate the terms so that you can keep repaying your loans, albeit with reduced payments, and remain solvent through the tough times.