Running a business is not risk-free. No matter what type of business you have or what its size is, you cannot run it without taking a risk. Lending money or asking for a loan is a risk as well.
As a business, you have to take a loan for a lot of things. Similarly, you have to provide services to clients on credit bases. Both of these situations are inevitable.
Taking a loan means you will be in debt, and if you don’t pay it off, it can lead to various consequences.
For instance, the lender can sue you or hire a debt collection agency for recovering their losses. That is why you must manage your business debt. A business with tons of debt won’t survive long in the market. So here are some ways through which you can manage your debt before everything goes south.
Here are some steps you can take for managing your debt.
- Before you act, figure out your situation
It is crucial that you understand your situation, meaning how many debts you owe and to whom? Prioritize the debts if you have multiple debts, and pay them one by one. Understand your budget as well, and figure out ways through which you can pay the debt without punching a hole in the budget. Also, make sure that you do everything in your power to start paying the debts, even if you start small. Otherwise, other companies or lenders can file a lawsuit.
Also, if you don’t pay the taxes or government loans, you run the risk of the government overtaking everything you have which includes your assets and house.
- Increase your sources of revenue
The quickest way to pay off the debt is to get more revenue and cash. To do that, you have to find ways through which you can increase revenue for your business. Here are some ideas:
Offers and discounts: You need quick cash, and the easiest way to do that is by offering discounts or offers. It will appeal to tons of customers, who would pay you cash upfront for these services.
Merchandise: It will require a bit of investment, but consumers love buying merchandise from their favorite brand. Who doesn’t own a Starbucks cup? Right? So, if your target market has a scope for the same, try selling these merchandise goods at a lower price. It might help you get quick cash to start paying off the debt.
Raise prices: It is a bit contradicting from the first point, but if your products have a high demand in the market, this could work. It is a great way to ensure that you get a good profit on your services and pay off the debt. Even a small amount can keep the debt collection firm in your good books, as it assures them that you will pay on time.
Social media: Start promoting your small business more on social media. These platforms can boost your sales and increase revenue which is the point. It is inexpensive as well, you need the right content and consistency for getting traffic through social media.
- Renegotiate terms of loans with bank
A bank wants its money so they would be open to renegotiating the terms. You can talk to the manager for:
- Either lowering the interest rate, or
- Increasing the period of repaying the loan. It will give you enough time to figure out a solid plan to pay the debt.
- In some cases, the bank or lender may even renegotiate the amount and accept a partial payment or lower amount.
Be proactive as the bank or the creditor doesn’t want to lose money, and it will if you go bankrupt. So, if you provide real facts and figures, they might go for any of these terms.
- Reduce business expense
Another way to cut back on budget, and use the reserve to pay off the debt, is to reduce business spending. You can do this by:
- Leasing a small space or working out of co-working spaces. It is a great way to cut back on rent and maintenance, and if you are not using the whole place, why pay for it?
- Instead of hiring new employees at a time like this, go for freelancers or consultants. But be vigilant, it can be more expensive if you are not cautious.
- Ask your vendors for discounts.
When cutting costs, be smart about it. Don’t cut costs from departments that will help your business in the long-term. It can be counter-productive.
Trying these methods is good, but at the same time be realistic. Some businesses don’t survive and don’t go neck-deep in personal and business debt to save one, that cannot be saved.