Starting a small business is an exciting time for every passionate entrepreneur. But before you know it, your business debts add up. Don’t worry though, debt can be part of starting a business. If your small business debt is starting to get out of hand, it’s time to figure out how to pay it off. If you are struggling with how to eliminate small business debt, here are x steps to follow.
1. Make a Realistic Budget
One of the first steps you need to take when beginning to eliminate your small business debt is to take a look at your budget. Sometimes, it can be easy to lose track of budgets and costs when you have so many other responsibilities on your plate.
Start by writing down all of your monthly expenses. Then, jot down your monthly income. If you are making a profit, you will be able to re-work some of your budgets to start paying off your small business debts.
Doing this exercise will also help you figure out your working capital and if you have any wiggle room. You can check out more tips on working capital and how to increase it in your business budget with this helpful guide. Creating a realistic budget will help you figure out what your business’s needs are and how well you are doing.
2. Cut Some Expenses
Now that you know what your budget looks like, you might notice that you have some unnecessary expenses. If this is the case, you can begin cutting down on expenses and reallocate that money to pay off your business’s debts.
Some of the ways that you can cut down on your expenses include stopping unnecessary subscriptions. You can also renegotiate deals with vendors and see if you can get better prices.
3. Prioritize Your Loans
Now that you know how much money you can use to start paying off your small business debts, it’s important to prioritize. Some loans will have much higher interest rates than others. You should organize your re-payments in order of interest rates, that way you are paying off the higher interest rates first. This will help you save more money in the long run since you aren’t continually paying high-interest rates all the time.
4. Start Paying with Cash
You can start paying off business expenses with cash to eliminate your small business debt. If you stick to only paying for expenses with the amount of money you have, you’ll decrease the amount of credit you are relying on. Although it can be easy to throw everything on the company card, you don’t want to have to worry about paying it off later. If this isn’t possible, try to slowly start limiting the amount you are using your lines of credit and switch for cash when you can.
5. Talk to Your Lenders
A little conversation can go a long way when paying off your debts. Make sure that you communicate with your lenders and creditors. You may be able to negotiate your interest rates.
You can also talk to them about setting up a schedule to pay off your debts faster. This will allow you to take a step in the right direction to eliminate your small business debts. You may also be able to apply for lower interest rates or extensions on your payback timeline.
It never hurts to have a conversation so be sure to talk to your creditors and lenders and see how you could renegotiate to more easily pay your debts.
6. Optimize Your Income
Another way to pay off your small business debts faster is to increase your business’s income. There are plenty of different ways that you can set your business up to bring in more money. Try hosting a sale to increase the number of customers coming through your doors. Try upselling with incentives to loyal customers that may be interested in more exclusive products. You can also make sure that clients are always paying you on time or just keep up with late payments all of the time.
Paying off your small business debt doesn’t have to be difficult. Staying organized and looking at all of your options will help you take the steps you need to pay off your small business debt.