Falling into the debt trap can be easy, especially if you don’t have the capital to invest in essential products and equipment for your company. If your profits decline and cash flow is tight, it can be hard to pay suppliers. Often, this occurrence is when companies take out loans to cover costs. If there isn’t an improvement in revenue, the debt situation can become compounded. However, these simple tips from Know All The Things can help you make your business debt-free in no time.
Dealing with Debt
Debt can be manageable if you confront it head-on with a purpose-driven action plan to resolve your situation.
- Create a spreadsheet. Compile a document of who you owe money to, how much you owe, and the total debt owed.
- Negotiate a payment plan with institutions. If you owe money to banks or investors, ask them if you can take a break from payments for a short period. Alternatively, negotiate a new payment plan allowing you to free up cash flow in the interim.
- Prioritize paying suppliers. Suppliers who you rely on for products or services take top priority. Make a list of who to pay first, and contact them to discuss. Ask if you can pay them off monthly or agree to a payment plan.
- Be honest. Admit your debt, and don’t be afraid to ask for help. If you don’t deal with your bad debt, you may have to liquidate the company.
- Reduce expenses. Cut costs where possible. Consider laying off staff and spreading their duties across your current employees. If you can, move your office to your home and work remotely.
- Consolidate your debt. If your debt seems insurmountable, consider taking out one big loan to pay off everything. This option leaves you with one single monthly payment.
Professional debt management companies can help you and your business by offering debt relief. These companies will assess your situation and help you to restructure your debt.
When you have a solid plan to pay off your debt and feel that things are normalizing, it’s time to secure your business so that it doesn’t fall into the debt trap again.
Most business owners make a few financial mistakes within the first few years of owning a business and can spend years paying for them. To safeguard your business, try sharpening your business skills by studying accounting or business administration. This versatile degree can be used across all industries and gives you insight into creating a company-wide budget and financial projections.
To improve your financial standing, you may want to consider changing your company’s business type to a limited liability company (LLC). In an LLC, members aren’t personally liable for any debt. There are also tax advantages to registering an LLC, which could save your company money.
To keep track of finances, make sure you carefully structure your invoicing process. Have a deadline on when invoices need to be paid and consider asking for a deposit. It’s vital to get paid on time so that you have money to pay other suppliers. To monitor money owed, use a free invoice template to make record-keeping easier.
Although confronting debt can be stressful, the sooner you commit to resolving your situation, the easier it is to start fresh and move forward. All it really takes is a little planning and persistence, and you’ll be debt-free in no time!
Featured photo by Mikhail Nilov from Pexels