Having some business debt is expected and normally not a problem when it is managed well within a budget. However, unmanaged debt can halt business operations and cause irreparable damage to a company’s success, especially if it’s a small company. According to the Business Insider, business debts rose to 18.8% in 2020. With no surprise, the increase has shaken up many companies (small and large), but it has also prompted determined business owners to devise new plans to resolve financial issues. Here are a few key strategies that could help you reduce small business debt.
Know Your Financials Well
Surprisingly, some small business owners only look at their account books or bank statements without paying attention to the complete financials of their business. Unfortunately, this scenario is much more common than you would think, as many small or new business owners don’t completely understand what all the numbers mean and how to balance them. This is a dangerous practice for any business because it’s basically like blindly walking a tightrope over a canyon.
Making decisions without all the facts is an efficient way to ruin any business quickly. Sometimes, debt might be so high that professional help is required to straighten it out. This also explains why some companies are forced to seek out a business bankruptcy law firm or a debt management consultant to resolve resolve debt problems. Knowing your financials must include essential information of your expenses for the following:
- Labor costs
- Cost of raw materials
- Lease/mortgage costs
- ROI (return on investment)
- Financial forecasting
Also, even if you’ve hired staff or an accountant to work on your financials, I recommend that you still understand and participate in the planning and execution of budgets and projections. This will ultimately help you to reduce your debt and make sounder decisions for the present and future of your business.
Seek Professional Help
Having your financial matters (primarily business debts) handled by legal or accounting professionals offers an opportunity to explore effective strategies and business debt techniques that otherwise you wouldn’t know about. Asking for help is a promising way to move forward toward financial goals and avoiding the pitfalls of business debt.
Watch Business Inventory
For many businesses, especially those that produce or sell products, a good portion of the cash could be tied up in inventory. This makes a company’s inventory one of the most likely ways to either incur debt or reduce it. But, inventory isn’t always easy to move quickly if needed. Therefore, it’s imperative to watch inventory production or spending when times are tough or sales are low. When considering your business inventory, make sure to look at the following things:
- Goods (finished, unfinished, or in production)
- Raw materials
- Any other item that contributes to daily business operations
It’s prudent to assess your business budget to determine how it could be tightened to allow you to pay off more debt. There might be certain things you can conveniently halt without affecting daily operations. For example, expenses like subscriptions, memberships, traditional media advertising, and even some office supplies can be reduced or canceled to free up funds. By prioritizing which items or services are necessary and critical to your business, you can more easily limit or eliminate unproductive expenses. When you find extra money, it’s important to plan how you will apply it to the debt. This might also be an instance when you seek consultation from a financial pro.