Is your business debt piling up? If so, you’re not alone. 2020 was a terrible year for many businesses – particularly those in retail. Many watched as JCPenney, Neiman Marcus, and many other companies filed for bankruptcy, unable to recover from the financial blow thrown by the pandemic.
Even if your professional firm’s debt currently feels overwhelming, fortunately there are strategies to help you pay off business debt. We’ll look at five of them in today’s post.
Figure Out Where You Stand
Before you can start paying off your debt, you need to first assess the following:
- How much debt do you have?
- How much can you feasibly pay off currently?
To do this, you need to calculate how much working capital you have, and see if that amount will be sufficient in servicing the debt moving forward. When you begin to pay off the debt, the best approach is to pay off bills with the highest interest rates and fees first since it’s the most expensive
This process should help you answer several questions about how to move forward, as well as give you a better picture of where your firm stands in relation to its debt. Once you’ve created a strategy, you’ll be prepared to attack the debt head-on.
Build a Better Budget
Budgeting will not only help you pay off debt, but it will also help you stay out of unnecessary debt. And don’t forget: creating a budget does not mean pinching pennies at every turn, it means choosing which important parts of the growth of your firm are worth focusing on.
Your firm wouldn’t have made it through the pandemic without a sense of wise spending, so you already know a thing or two about budgeting. The point of this budget is to keep your debt at bay while increasing your revenue, which can be used to pay off the original debt.
The first thing to do when creating a budget is to set a budget amount based on your firm’s unique financial situation. Next, calculate your revenue, and then subtract your fixed costs and variable costs. This should give you a great idea of how much your profiting, and more importantly, how much you can pay towards your debt.
Cut Down on Extra Spending
When times are tight for your firm, remember that your firm only needs the basics to function.
As a business grows, employees often get used to having nice things – from SWAG to office space luxuries – but when your business is struggling with debt, all the superfluous spending needs to stop immediately.
That is not to say your business can’t grow while cutting extra spending, however. It just means you should be aware of what part of your spending is related to the core business plan, and how much of your spending is not necessary.
Ready to go looking for extra expenses to cut down? Here are a few good places to start:
- Cut back on supplies, office parties, and unnecessary technology purchases
- Assess the ROI of your marketing methods and cut those that aren’t generating a positive ROI. Embrace cheaper options to drive site traffic, such as blogging.
- Look at contracts with vendors, and consider switching to more affordable ones, if at all possible
- Analyze subscription services that your firm is paying for and see which can go. These are very sneaky costs!
And, better yet, if you have too much of anything, such as equipment, don’t forget that you can sell some off.
Work With Your Lenders and Creditors
You can make your debt cheaper by working with your lenders and creditors to reduce fees.
Here are 3 common ways to do so:
- Consolidate Loans: Sometimes your lender will consolidate debt into a loan package that will take a longer time to pay off, but this will also grant you more manageable monthly payments.
- Negotiate Lower Interest Rates: If you show a significant effort to make monthly payments on installment loans and can provide numbers that prove your business is doing well, your lenders may consider lowering your interest rate. As the saying goes, it can’t hurt to ask!
- Enroll in a Hardship Program: Finally, you can enroll in a hardship program. To do this, you need to show financial statements and tax returns to your creditor to prove your company needs better rates and terms to clear your debt.
Your lenders and creditors want to see you and your business succeed, so don’t think of them as the enemy—think of them as potential help!
Can you guess the very best way to pay off debt?
Make more money!
Of course, this is a lot easier said than done, but the truth of the matter is that increasing revenue is the best way to pay off debt. And there are plenty of ways to do so:
- Raise your prices
- Upsell your customers with additional offerings
- Start a subscription service
- Sell your firm’s surplus supplies
Additionally, consider ways you can diversify your offerings without significantly hurting your budget. Your existing clients already trust you for one service, so why wouldn’t they want to work with you in another service if you can perform it at a high level? You could even offer a bundle discount!
Bonus Tip: Take Advantage of Great Software!
Here’s an extra for you: if your debt is stacking up, you don’t have to feel like you’re fighting against it on your own. In fact, there’s a lot of great software to help you along the way!
BQE CORE is one such program. CORE helps you manage time and expense tracking, billing, invoicing, human resources, invoicing, and more! Programs that streamline your work and help you get paid faster might be an extra expense, but they’re also the secret weapon to getting the most out of your budget.