Prioritise your small business’s debt by using these 7 tips

In most cases, you need the capital and assets to help run your business. The downside; however, is the aftermath of acquiring capital and purchasing assets, often growing your small business’s debt.

As a small company owner who is trying to get their business off the ground, it can become overwhelming, especially when you don’t know which debt to pay first, or how to cover all these bills.
With the right strategy, it is possible to get out of debt. It may not seem like that when you’re overwhelmed by the numbers. But once you start actively and consciously working on it, the balances will go down. Debt is not supposed to be a long term issue, but it’s your responsibility to work at it.

We understand how stressful being in debt can be, so we have written this article as a way to help small business owners prioritise their debt and pay it off while ensuring the success of their company.

Know your numbers

The first step to any debt payment plan is knowing your numbers.

This will help you get an overall understanding of how much you owe and how to go about it. Sometimes seeing the overall debt balance will help you knock off small debts first. But that isn’t the only reason why you need to know your numbers. Knowing your numbers will help you categorise your debts into; emergency, priority and non-priority debts. Emergency debts are debts that you need to pay off immediately as you’ve missed payments and there is a court judgement against your name. Priority debts are important, and will have legal repercussions, or will ruin your relationship with your vendors if you do not pay them soon. Your non-priority debts are those which are in good standing.

It is important to focus on your emergency and priority debts first to ensure you do not ruin your business’s credit score, relationships with vendors or overall reputation for the future. This; however, does not mean you must not pay your non-priority debts. It just means you need to pay off the ones with the most threat and cover your monthly minimum payments on your non-priority debts.

Increase your company’s revenue

Once you know your priority and non-priority debts, you need to find ways to bring in more money. For you to be able to cover all your debts and still run your organisation, you need more revenue.

To get more money coming in, you can introduce a promotion for your clients or customers. Promotions and sales are an effective way for you to reel in new customers, and get existing customers to spend more money with your business. When trying to bring in more capital, be mindful when it comes to discounts as they might negatively affect your bottom line in months to come.

Start cutting down your company costs

As a small business, you might believe that you are only using money on things that you need. But, since you are trying to cut down and prioritise your debt, you need to find a way to run your business with low operational costs. Take inventory of what your company uses and how much it costs you, see what you need and what your business can do without. When looking at inventory, you can decide to stop certain activities, or you can choose to sell a big asset that’ll alleviate your financial pressure.

Apply for a business loan

When trying to pay off your debt, you might not even want to get financial help from a lender. However, applying for small business finance can be a saving grace for your business. You can use the money to either consolidate your debt and have one monthly repayment or you can purchase an asset that you know will give your revenue a boost. Of course, you will need to have thought this through and worked it out to see if you can afford to take out a business loan application.

An online budgeting tool can help you determine whether this is the right move for your company or not. Lenders’ websites also have loan calculators which will give you a similar guideline of how much you will pay on a loan amount of your choosing. When using a loan to help with your debt, the goal is to find a loan agreement that has better terms than what you currently have. That way, you are saving money on interest and you are still able to settle your bills without compromising too much.

Tackle your debt smartly

There are different methods for settling your debt, and it’s important to choose one that can help manage your finances better. Just like your personal finances, you can choose between the snowball and avalanche method. A debt snowball means paying off your small debts first then going onto the bigger ones. This one does not make you save more, but it can be motivating once you see your small debts shrinking. The debt avalanche method is ideal for those who wish to save more money and time; essentially, it means you are putting in more money towards debt with higher interest. This will help you to save money on the interest you would accumulate over time. When choosing a payment plan, it’s important to find one that works for you and is realistic for your business’s needs.

Contact your creditors

When you see that you are struggling and need debt help, you have to contact your creditors.

Reach out to them and find out if they can lower your interest rate. Most of the time, the reason why you cannot see your debt going down is because of the high fees and interest rates. Creditors are not the enemy; they might be willing to help your business get out of debt. So, always keep in mind that they are working with you, and they would rather work with the money you have instead of losing the money they’ve loaned. With lower interest, the money will help to lower your balance faster.

Create a budget for your business

Having a budget is important in both your personal life and business because it helps you manage money better. If you do not have a budget, this can be the reason why your money management isn’t going as planned. Create a budget where you cut back on unnecessary spending, prioritise on debt and start an emergency fund. By including those three aspects, it will ensure you settle your debts, and stay out of debt as you will have money to pay for emergencies should the need arise.

Final thoughts

Running a business is hard, and without proper planning and money management, you can find yourself in a debt-ridden situation. However, if you start creating a repayment plan that is realistic and focuses on cutting down debt, then you can get through it. If you see that you cannot do it alone, contact debt advisors that will help you with repaying your debt.