Debt is often a part of operating a business. Business loans allow you to take the necessary steps, such as hiring employees and investing in new equipment, to grow your business. However, too much debt restricts cash flow and puts your business at risk of financial problems. It’s best to find a good balance that allows you to expand your business while maintaining a healthy asset-to-debt ratio.
If you’re trying to eliminate or minimize your company’s debt, consider taking the following four steps.
Adjust Your Budget
If your business is accumulating too much debt, your budget isn’t working. Revisit it and create a new budget that reflects your business’s current situation.
First, make sure your current revenues cover your fixed expenses, such as your lease and employees’ salaries. Then, devote a percentage to variable expenses, such as manufacturing materials. Any money that’s left over should go toward your debt. In other words, use all your profit to pay down debt.
Cut Unnecessary Costs
Figure out what’s causing your debt to spiral out of control. Look at every expense you have, even items that you consider necessities, and find places to cut back. Could you lease a smaller office space? Are you spending too much on advertising? Can you cut back on supply costs?
When you’re looking at cost-cutting measures, note that you must pay employees on time and before you make any debt payments. You can reduce staffing after you’ve paid your employees everything you owe them.
Boost Sales
Once you’ve adjusted your budget and brought costs under control, work on boosting your sales. The right strategies will help you sell more without overspending.
- Look into establishing a loyalty program. This program can increase sales when done correctly.
- Engage with customers on social media. This form of outreach is an inexpensive way to get more sales.
- Work on increasing your online reviews. Studies indicate that online reviews have a significant impact on customers’ purchasing decisions.
Seek Debt Forgiveness
If you’ve revised your budget, cut costs, and applied all profit toward paying off debt but you still can’t seem to make any headway, look into debt forgiveness. While many people have a negative view of debt forgiveness, it’s better than declaring bankruptcy and can help you get your business back on track.
Debt forgiveness allows you to restructure your loans, letting you go from several monthly payments to one payment that is typically at a lower interest rate. You can also get help if you’re in debt to the IRS. If you owe back taxes, get professional help to try and have the amount you owe reduced and your payments restructured. When your debt is under control, invest the money you save into your business.
While eliminating debt altogether is unnecessary, taking steps to get debt under control will help your business thrive. When you owe a reasonable amount of money, you’re less likely to experience cash flow problems and more likely to invest in your business. To get debt under control and make profits, restructure your budget, cut costs, and boost sales. If necessary, look into debt forgiveness to help your business.
