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How to Reduce Your Business Debt in 8 Steps

By Cassidi Heltcel, CPA

Owning a small business can be one of the most rewarding things an individual can do. From the cultivation of an idea to the first day of operations, starting a business can stretch an individual’s intellectual capacities to the limit while building wisdom, discipline, and mental strength.

Not all businesses can get off the ground without some financial help in the form of a business loan or line of credit. Besides these types of debts, operational expenses can also add to the level of debt, which can make the issue more difficult to deal with.

Fortunately, there are ways to reduce small business debt - many of which can be implemented right after you are done reading this article. These steps will help you pay off your debt and ease your mind in the short term while you focus on strategies to bring in more cash flow in the long term. 

1. Assess the current financial situation, then continually monitor it

In many things in life, it helps to take a step back and look at things for what they really are. Take a look at the reality of what is owed and what revenues are coming in. For many business owners, assessing the reality can be a difficult part of the process of reducing debt. 

Summarize the big picture on a spreadsheet using your accounting software and financial statements and open it every single day. Set short-term, medium-term, and long-term goals, and keep them at the forefront of your mind. This step is critical for the following action steps that will follow.

2. Cut expenses/reduce spending

Cutting costs is never easy; however, in most cases, there are always expenses in a business budget that can be cut back and/or reduced. These items can include any unnecessary subscriptions for services that are rarely used. Some business owners often lose track of these types of expenses because they are automatically charged and sometimes forgotten, often to be found on a credit card statement among a long list of other expenses.

In some cases, subscription providers may give discounts for long-term renewals in addition to discounts for small businesses for multi-year subscriptions. Other expenses like take-out, coffees, and extra “perks” can really add up. It can really help to keep track of every cent because this often makes a big difference in the eventual bottom line.

3. Create a debt repayment schedule

A debt repayment plan or schedule is a plan that can be set up to eliminate debt in an efficient way, to minimize interest rate charges and keep collection agencies away. Credit cards, bank loans, and tax payments are examples of debt that can be included in an overall plan to reduce existing debt through a debt repayment schedule. 

4. Free up cash flow/increase income

Rather than focusing on the debt, it may help instead to focus on increasing cash flow. No matter where we are in the economic cycle, there is always opportunity.

There are many ways to free up cash flow and bring in more revenue. They include increasing sales, increasing prices on a product or service, reducing expenses, opening a higher interest bank account and improving inventory turnover.

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5. Consolidate debt

Debt consolidation combines multiple debts into single monthly payments, usually to a new creditor, using the services of a debt restructuring firm.  A primary advantage of this option is usually lower interest rates, along with the simplification of multiple loans into a single monthly payment. 

6. Negotiate terms with vendors or lenders

Some vendors or lenders may be willing to undergo debt settlement for a portion of the debt while the remainder is forgiven. This may require a significant cash outlay at the beginning (in lieu of future payments) however, many creditors and lenders could be willing to take what they can in the present, even if it’s a fraction of the total amount. 

7. Consult with a debt-restructuring or accounting firm

A debt-restructuring or accounting firm can provide the expert advice needed to solve your business debt problem with the greatest efficiency. The odds are that most experienced finance professionals have seen multiple cases similar to yours and can offer innovative solutions that perhaps you have not heard considered.

8. Create a plan and stick with it

No matter what the endeavor, a plan requires perseverance and discipline to succeed. As mentioned in the first step, assessing the situation honestly and deciding to pay off all debt is an essential first step. Sticking to it will ensure that the goal is successfully reached.

Most accounting firms can help you establish a debt relief plan; however, the right firm will create a tailored strategy while holding you accountable for sticking to it. Contact us for a free consultation today to get your business back on track.

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