09 Nov Tackle Business Debt and Improve Your Financial Health
A Five23 Guest Post by Tina Martin
Courtney is behind Ideaspired. You can read her blog and tips here: Ideaspired
If your business is in debt, you’re not alone, since 70% of small businesses have debt, according to Federal Reserve Banks. Overwhelming business debt can add to the stress of being a business owner. Taking charge of your debt with smart budgeting and planning can help you improve your financial future.
Evaluate Your Debt
Having a clear understanding of your total business debt helps you create a plan to pay it off faster. Review your outstanding loans, credit cards, bills to vendors, and other debts to get a total. Prioritize the debt and make a plan to pay it off as quickly as possible.
Create a Realistic Budget
Review your current business budget to see where your money is going. You’ll likely need to change certain areas to free up more money to pay debt or reduce your reliance on credit to pay for business expenses.
Cut Expenses
Paying off debt faster and reducing new debt can only happen if you cut your expenses and/or increase your revenue. Look for bigger cuts that give you a large amount quickly. Then, add several smaller cuts that can build up for more savings. Examine every expense to ensure it’s necessary and find places to cut. Ways to cut expenses include getting rid of unused company vehicles, moving to a smaller location, or improving your efficiency.
Boost Revenue
Bringing more money into your business while cutting your expenses gives you a bigger cushion of cash. Offer a special to boost sales, or focus on upselling current customers for larger individual sales. Try new marketing techniques to attract additional customers.
Collect on Debts
If your clients pay through invoices, collect payments faster. For example, if you normally give people 60 days to pay, you might change the payment terms to 30 days. This gets money coming into your business faster, so you can pay off debt and improve your financial situation. Tracking down late payments can also help.
Consolidate Business Debt
Consolidating your debt can make it easier to pay off. With a consolidation loan, you can pay off individual debts and make a single payment each month. An ideal consolidation situation gives you better terms or interest rates than the individual debts.
Negotiate Rates and Terms
An alternative is to negotiate the rates and terms of your current debts. If your lenders lower your interest rate, you can have smaller payments or pay the debt off faster. If you can’t keep up with your current payments, ask your creditors if they’ll extend the length of the loan or accept smaller payments.
Form an LLC
By forming an LLC, you can often lower your taxes, which can improve your financial situation. It also provides protection against personal liability. To form an LLC in Idaho, you need to choose a registered agent, file a certificate of organization, and create an operating agreement. If you don’t want to do the paperwork yourself, you can hire a formation service without the large fees a lawyer charges.
Improve Your Financial Health
By paying down your business debt, you set yourself up for a healthier financial future. If you need help getting an overview of your business, consider the options for startups from Five23.