6 Practical Tips For Paying Down Business Debt

Many company owners have taken on debt unwittingly to keep alive during COVID-19, and they don’t want it to linger. If you’re worried about the future because you’re in debt, these practical tips for paying off your company debt will help you get back on stable ground.

1. Make a Business Plan

A business plan is an essential component of any effective organisation, and it can be particularly beneficial when it comes to handling your company’s finances. The following items should be included in a well-structured business plan:

• Marketing Strategies
• Accounting forecasts
• Start-up costs
• Loan repayment

Once you’ve created a business plan, go through it again and change it until it’s exactly what you want it to be. Your company’s business plan should evolve with it. Don’t be afraid to revisit your strategy on a regular basis and make adjustments as needed.

Planium Pro  has all the necessary tools for you to get started with your business plan. Use the software to capture all your business information, marketing, operations and finance plan in one place.

2. Examine Your Debt Situation

The first step should be to write out all of your debt. Get a good idea of how much debt you have and how much you can pay off. Calculate your debt-to-income ratio to see if you have enough working capital to keep paying off your debt.

You should make a strategy to avoid being consumed by debt until you know where you are. According to conventional wisdom, the most costly debt should be paid off first (or the one that is costing you the most in interest and fees). Make timely payments on each account, regardless of how you want to attack the debt.

3.  Decrease Your Business’s Spending

Ken Thomson, cofounder of Biz911, a small business debt management agency, advises that you start by recognising the parts of your company that caused you to go into debt. Then, make them more efficient and get rid of the pieces that aren’t required.

Minimizing the spending is a multi-faced strategy that can take a variety of forms.

• Keeping the spending under control
• Understanding your costs
• Cutting costs 

Perhaps you’re overpaying for office space and should downsize or encourage some workers to work from home. Maybe you’ve spent too much money on ads and aren’t taking advantage of less expensive marketing methods like social networking and blogging. It’s also possible that you overspent on equipment (then sell some!). You can also save money on materials by negotiating with suppliers for lower prices.

You should make a working budget on a line-by-line basis to keep track of your expenses. When you do this, you can first look at the interest rate on your loan. Then, for each unnecessary cost, assign a ROI value. If the item in question has a lower ROI than the APR on your term loan, you should cut it out. Once you’ve created your budget, you may be shocked by how many expenditures your company has that don’t justify keeping it in debt.

4.  Consolidate Debt

Debt consolidation is a process in which a lender consolidates all of your loans (such as a company credit card, a line of credit, or an unsecured loan) into a single, low-interest loan that helps you to handle your debt with only one monthly payment. Because this is a controversial method of debt management, here are a few quick benefits and drawbacks:

Benefits:

• Lower interest rate – When you merge your debt, you will typically get a lower interest rate than you would if you left your debts separately.
• One payment vs. multiple payments – The goal of debt consolidation is to reduce the debt to a single payment, making it easier to handle. This cuts down on the time it takes to prioritise debts or keep track of a large number of debtors.
• Smaller monthly outflow – The nett cash outflow for the month would be smaller than before your debt consolidation because of a lower interest rate and only one payment rather than multiple.

Drawbacks:

• It’s much easier to get back into debt – now that all of your loans have been consolidated into a single payment. It’s much easier to get into the mindset that you should spend more to use the company credit card, resulting in more debt.
• Longer loan term – because the lender is bundling all of your loans into a single loan at a lower interest rate, the duration of the loan can be extended to accommodate these features.
• You will end up paying more – extending the repayment period may cause you to spend more than you would have otherwise, which is where debt restructuring helps the lender.

5. Use Tools and Resources Available

Most of the cost monitoring and budgeting can now be automated in today’s world. You can easily create a budget using accounting software like Intuit’s QuickBooks, Peachtree, allowing you to invest wisely and have more money to pay off debt. 

Take advantage of educational tools in addition to cloud-based computing and other innovations. Understanding how money flows in and out of your business makes it easier to handle your company’s finances and minimise debt. Free tools such as the SCORE Association  will link you with a local business mentor and enable you to participate in online workshops.

6. Increase Your Income

If there is more money coming in, paying off company debt is a lot easier. Here are some suggestions for increasing your earnings.

• Increase the variety of your services

What other services would you give to clients to add value and make your company a one-stop shop? You’ll be more useful if you can meet as much of their needs as possible. For example, graphic designers and web developers may collaborate to create a functional and appealing website for clients.

• Increase the prices

Many businesses are hesitant to raise rates for fear of consumer retaliation. Customers, on the other hand, can be surprisingly understanding when they are informed about price rises ahead of time and given a brief explanation as to why, such as supplies expense rise.

• Liquidate your holdings

Inventory, machinery, and materials that are covered in dust waste money for your business. Selling them generates extra cash and frees up warehouse space for other products.

• Look for other ways to make money while you sleep.

After some initial effort, passive income may become a hands-off way to earn money. Passive income concepts include courses, pre-made offerings such as website themes and models, blogging, and opting for royalties rather than a one-time fee.

Final Thoughts

Business debt does not have to be a source of anxiety. With these 6 ideas in your small business toolbox, you will start making progress on your debts and start preparing for the future in 2021. Establish a strict business budget, minimise costs, and compromise where necessary to reduce debt. Your company will make huge financial gains as a result of this.

Do you have any advice for company owners who are trying to pay off their debt? Please share them in the comments below!