( read )

7 Tips To Make a Debt-Free Business Possible

By Jamie Ward, CPA

Running a business during an economic downturn can be challenging at best and terrifying at worst. Individuals that start a business often do so out of inspiration and a genuine desire to be independent and prosper. Despite the challenges, it can put all our skills to the test, and for many, it’s worth the effort.

Because small business owners are so passionate about what they do, they can genuinely feel the pains when their business starts to suffer. This can make the accumulation of debt from small business loans, lines of credit, and other sources particularly painful. 

Is small business debt inevitable?

When major expenses, purchases, and investments are taken into account, it may seem that debt is inevitable. The operating costs of running a business can sometimes cast a shadow over profit potential, causing some people to worry incessantly and suffer from stress.

The truth, however, is that the profit equation has two main components: revenue and expenses. When expenses are high, costs should be reduced. Accordingly, when profits are low, sales should be increased. 

Growth during a recession is possible

Finding a cash flow management model that works is the key to flipping the odds in your favor. There are no tricks or shortcuts to this strategy. It’s based on sound business principles that can be tweaked to move cash flow in a positive direction. The following tips can be applied to nearly every business in any sector:

1. Increase incoming cash flow through more sales 

Often, the most straightforward solution is the most effective. 

Ultimately, debt is money that is owed. Increase cash coming in so you can pay cash out and reduce all liabilities, in order to make a debt-free business possible. 

While it’s easier said than done, there are always opportunities to make more money. Brainstorm income strategies for increasing prices on products or services, engage in consumer research, and activate new marketing campaigns.

Copy of Ascension Highlighted Text Template-2

Set goals, write them down, and review them every single day. Goal-setting is a top strategy for every high-performance business leader, and it works.

2. Decrease debt by cutting expenses

Operating expenses can always be cut during lean times. “Nice to have” items such as subscriptions or memberships can be put on hold. Items that seem inconsequential (like takeout and coffees) add up over time and are often the easiest to cut - this can make a huge difference in credit card debt.

Another strategy is to take advantage of bulk pricing or discounts for multi-year subscriptions aimed at small businesses. Small savings add up and the results may surprise you come tax time. 

3. Improve inventory turnover

Often when we enter a new economic cycle, consumer preferences also shift. “Wants” get cut while “needs” get prioritized. Excess inventory in the first category can be liquidated, while resources are focused on products and services consumers actually need at all times of the economic cycle.

4. Identify a debt relief or refinancing plan 

During particularly difficult times, a debt relief, debt consolidation, or refinancing plan can help manage large levels of debt in a systematic way. 

Besides lower interest rates and a possible reduction in the principal amount, these debt management plans can bring the peace of mind that comes with knowing that the situation is under control. 

Businesses often borrow money as a way to make it through challenging periods. Debt relief plans consolidate all that debt, reduce complexity, and bring it all under control - often to just one monthly payment.

5. Improve accounts receivable turnover and take advantage of early-payment discounts

Improving accounts receivable turnover frees up more cash in the short term, that can be used to pay down debt faster. Try offering discounts to customers who set up automatic payments or pay for several months in advance.

On the flip side are possible early payment discounts from vendors. Along with improving your credit rating, these amounts can add up over the short term to make a substantial long term difference. 

Seek advice for top strategies on making your business debt-free

The right accounting firm can help guide you toward running a debt-free business. An investment made today can lead to substantial future savings. Contact us for a free consultation.

Request a free consultation