Owning a small business comes with various challenges, and money matters are usually on top of every small business owner’s list. This includes managing finances and paying off all business debts on time to keep the business running smoothly.
How To Get Your Small Business Debt Free
According to a study conducted by Experian in 2016, an average small business owner in the US has about $195,000 of debt. This study shows that having debts while owning a business is normal. Just because business debt is normal, though, does not mean you can avoid addressing it.
Below are some of the tips you might want to consider in handling your small business debts:
Get To Know Your Debts
You might have different debt types on your business account. It would be best to understand all the loans you have taken for your business, be it a payday, installment, credit card, or lines of credit loan.
It’s also important to understand whether your loan is secured or unsecured. A secured loan requires collateral, and an unsecured loan doesn’t. Knowing this enables you to prioritize which loan you should pay off first.
Getting to know all your debts will help you to make an inventory. Next, start sorting debts by monthly payments and interest rates. Make sure to include all the loans or other payments you are going to make. Making an inventory of all your debts helps you prioritize which to tackle first. Some experts suggest that you should start with the highest interest debts because debts with high interest cost you more in the long run.
Boost Your Small Business Sales
After having a debt management plan, you should think about boosting your sales. The following are some ideas you can consider:
- Have A Loyalty Program
If you want to enhance your customer retention and satisfaction, a loyalty program is the best way to go. Rewarding your customers will certainly make them want to shop or engage in your business more.
- Be Active On Social Media
Almost everyone has a social media account nowadays. As a result, there has been a shift in the way businesses market their products and services. Instead of newspaper ads, now businesses make Facebook pages and Instagram accounts, and run ad campaigns via their social media platforms. It’s also important that businesses be active on their social media pages and accounts (respond to queries fast or ask suggestions from your clients).
Consider Cutting the Costs
Boosting your sales can help you a lot in paying off debts. However, cutting out unnecessary costs will help you save more money. And as they say, “Money saved is money earned.” Here are some tips to help you shed those extra burdens:
- Downsize to a smaller office. A small office typically has lower utility costs and rent. That means you can save a lot of money compared to having a big and spacious one.
- If you have equipment in your office that you don’t use, consider selling it. You can make money out of it and use the amount to invest or pay off your small business debts.
Refinance High-Cost Debts
If you think it would be impossible for you to repay your debts anytime soon, consider refinancing or debt consolidation. It’s a great option, especially when you have strong credit.
When it comes to refinancing, you can get a new loan with a low interest rate to pay off the original loan. On the other hand, with debt consolidation, you combine all of your multiple loans into one new loan.
Additional Money Management Tips
Below are additional tips small business owners should know to manage their finances:
Separate Your Personal and Business Expenses
Mixing your personal and business expenses is a bad idea. There are many reasons you should never do this. It will lead you to messy accounting records, personal liability, tax issues, and the like.
One of the best ways to ensure the separation between your personal and business expenses is to create a separate budget. That way, you won’t worry about consuming the loans and credit cards intended for your business to be used by your finances or vice versa.
Always Pay Your Bills On Time
It is vital to pay your small business bills diligently. Loans and credit cards’ late payment fees can cost you a lot. Not only that, but utility bills and small late fees on vendors can add up to your expenses as well.
It would be best to set up monthly reminders to help yourself. Setting the reminder a few days before the actual due date would be great. That way, you won’t miss any debt payments or other bill payments.
Big or small, having debt is not very good for your business; business owners need to understand how to both manage and control their debt. Poorly managed, out-of-control debt can put a small business in a precarious situation. There are many ways you can consider managing your small business finances and debts of any size, just choose the option that works best for your business.