Managing Debt if you Own a Small Business

Managing Debt if you Own a Small Business
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While taking on the role as a small business owner can be both an exciting and financially rewarding experience, unfortunately it can also sometimes mean that you will be subject to an added level of personal financial difficulty. If you own a small business and are struggling with current debt or looking for methods off preventing your debt was growing too large, then you will need to rely on some financial strategies to help keep your business running as smooth and as financial sound as possible.

If you have found yourself with a lot of debt and are starting to worry that there will be no end to it – here are some methods of digging yourself out of debt and getting your business back on its feet.

Re-examine your Budget & Look to Cut Costs

First and foremost, you will want to look at any areas where you may be spending more than you have to – or even some aspects of your business that may prove to be unnecessary costs. This can be done by going back to your budget and identifying how much money you are spending each month and over the course of the entire year. You will also weigh this against how much income you have coming in. At this point, it is likely that you are already aware that you have an imbalance between incoming and outgoing funds. However, going through each and every financial aspect of your business with a find tooth comb, can help you pinpoint where you may be overspending – and where maybe you don’t have to.

After you have identified which areas of your business that have led to this debt, you can take action to reduce these costs. Some potential areas you can consider cutting back on may include:

• Reducing the amount of space you rent or lease, especially if you’re not using it all.

• Re-negotiate with your suppliers, inquiring about possible discounts and reduced payments that may be available if you buy in bulk, for example.

• Cut back on ‘office’ expenses, such as phone systems or other technology you find you can do without. Additionally, you can also look at selling some equipment/office supplies you don’t need anymore.

Re-work your Budget & Determine how much you can Realistically Afford

After you have identified the areas you can cut back on, you will be more aware of what amount you can realistically afford to spend each month. As a part of this budget you will likely want to factor in a portion of the your incoming revenue that can be used to pay down your debts. Ultimately, what these two first points can help you achieve, is to free up some more money to pay down your debts. In turn, if you are not having to spend as much each month and have more money to pay down your debts, you will not be adding to your overall debt as well.

Prioritize your Debt Payments

One approach to paying off debt that has proven to be effective to certain borrowers with bad credit, is to prioritize their debt. With that being said, often times choosing to first pay off the debt that has the highest interest or the largest volume of debt can be a good course of action. If for example, you have one or more business credit cards, with more cash flow, you should be able to pay down more of your credit card bill – hopefully paying off more than the minimum balance each time. Additionally, you will be saving on interest charges, especially since many credit cards have relatively higher interest rates than other loans.

This is not to say that your credit card has to be the debt you will pay off first, however it can be very useful to pay off the debt that is causing you the most grief. Another method may instead be to pay off many of the smaller debts, which can take less time, as well as helping you gain some momentum in your debt repayment plan.

Consolidate your Business Loans & Reduce Monthly Payments

If the above mentioned strategies do not seem to be enough on their own to make a difference in your financial predicament, then looking at taking a more overall approach to your debt-relief may also be necessary. You may for example, look to refinance your loans.

In this case, you can look at consolidating your loans into one low interest payment. Again this may make it more manageable to pay down your debt in more than one capacity. Typically, loan consolidation means lower interest, so right from the start you can help improve your situation by reducing these charges. Through a loan like this you also have less to think about in terms of how many different payments you need to make each month. If for example, you consolidate all your credit cards into one loan, you only need to make one payment, instead of multiple ones each time. Overall, if you can lower your monthly costs, you can free up some cash and pay down your debt at a faster rate.

If you can take action immediately and improve your cash flow before it becomes too unmanageable you can hopefully balance the scale between incoming and outgoing funds as soon as possible. It will also be important to remember that you do have options and strategies at your disposal that can help. Lastly, some times turning to a financial professional who can work with you to find a debt relief plan that is specially suited to your finances and business needs will also be an important step towards ensuring your continual business success.


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