(Updated: 24 June 2023)
As a business owner, you can’t easily plan or predict a recession, inflation, natural disaster, bad payer, or business debt. These are risks every business owner must face at one time or another throughout the growth and development of their business. However, there are services and processes available for business owners to help safeguard their business against these types of risks and to help them manage their debts easily.
When we think about business debt, we think of a company that borrowed money for business purposes. Nevertheless, having debt reducing strategies in place can help put business owners on the path to better financial health. Manage what you owe before it becomes unmanageable. In this article, you will learn how you can dig your business out of bad debt.
Understand your financial situation
Gaining a clear understanding of your financial situation is one of the first steps in getting out of business debt. If your finance department keeps good financial records, your debt becomes much more manageable to overcome.
Here are a few steps to managing your finances correctly:
- Create a budget: As a small business owner, you need to know exactly what you are spending your money on. By making a budget, you can easily plan ahead to lessen the impact of potential unexpected situations.
- Keeping on top of your cash flow: Reviewing your cash flow statements regularly is a simple way to stay up to date and informed of your business’s financial health. A cash flow statement gives you a point-in-time snapshot of your company’s earnings and expenses.
- Identify your assets and liabilities: List your business’ assets and liabilities to better manage your accounts receivable and accounts payable.
Create a debt repayment strategy
By creating a debt repayment strategy that is both simple and realistic, you won’t be tempted to incur more business debt. You will need to be patient, do not set high repayment goals, and do not feel discouraged if you require more time to repay your debt.
Here are a few ways you can setup your strategy:
- Prioritise your debt by highest interest rate and plan to repay that first.
- Communicate with your lenders, business partners, and suppliers to come up with a sound repayment plan that benefits everyone without losing valuable goodwill.
- Consolidate your debt by focusing your payments on one loan or debt rather than on multiple loans. However, by consolidating your debt, you may be faced with a higher interest rate, therefore, it is important to understand the pros and cons beforehand.
Revisit your business’ budget
Having control over your company’s expenses can give you greater insight into what expenses can be reduced or eliminated all together in order to stay within budget. However, if you find that your budget may not be realistic, it may be time to revisit and revise your budget based on your current financial situation.
Here are a few tips when revising your budget:
- Make sure your business revenues can more than cover your fixed monthly costs.
- Allocate a portion of the budget for variable costs such as manufacturing materials.
- What is left over should go towards your debts. Otherwise, your debt will keep building and it’ll take years to pay off.
- Consider setting up accounting software for your business in order to help you track your budget.
- Identify and eliminate unnecessary expenses that will not impact the day-to-day operations of your business.
- Revaluate current suppliers and determine whether more budget-friendly suppliers are necessary, alternatively and depending on your relationship with your supplier, see if you can negotiate better rates.
Increase your monthly income
Making a profit is the end-goal for any business regardless of company size. However, businesses in debt tend to have a higher sense of urgency in terms of increasing their monthly review. Therefore, it’s important to look at marketing strategies that will help you generate more monthly sales, thus improving your company’s income.
Here are a few ideas you can use to increase your monthly sales:
- Set up a time sensitive promotional sale for your products or services to help attract new customers and entice existing customers to make another purchase.
- Consider implementing an upsell and cross sell sales strategy, for example, some shops have seasonal sales when you purchase an expensive product you can get a cheaper product either for free or at a discounted rate.
- Expand on your products or services if applicable and without going into more debt. These could be updating current products or by improving the value of existing services so that clients feel that they are getting real value for their money.
Seek professional advice
If your business debt is overwhelming and you’re worried about falling behind on repayments, you can enlist the help of credit counsellors. These companies can help you with debt management strategies, identify inefficiencies that are costing your business money, and negotiate better repayments in terms of creditors and suppliers.
Send final demand letters and list bad payers
A lot of the time, companies fall prey to debt because they let their unpaid payments from their customers stack up. Doing nothing about your bad payers can have a disastrous effect on your bottom line. In order to take back control of the situation, you can send final demand letters or list your non-payers. This will allow you to not only take action against your non-payers but will also yield you results.
Take the first step
Ignoring your debt will not make it go away nor will it reduce the effect it has on your business. The business world has a lot of uncontrollable factors, but implementing these steps can ultimately help you reduce the effects of your debt. Take the first step by contacting us at MarisIT and let’s get your non-payers listed today.
