For a small business in a competitive market, debt can take over your company quickly and with little warning. Owing money to creditors is an extremely stressful situation for any business owner and with mounting debt, it can feel like you have no way out. However, there are some key steps you can take to generate more revenue in your business and begin the process of paying off your debts.
1. Cut unnecessary business expenses
When your business is in debt, it’s vital you examine your outgoing expenses to determine where you can cut costs. At a time when your business is in crisis, you should only be spending money on the essentials and cutting down in any way you can. Sit down with your company’s bank statements and work out the areas you can afford to reduce your spending to make savings. Perhaps you can decrease your marketing budget, sublease unused office space or even sell off rarely used equipment or vehicles.
You could even contact your regular suppliers to try to negotiate discounts on your orders and reduce your overall expenses. Whilst making these cuts can lead to some difficult decisions, the money raised could have a big impact on your business debts.
2. Increase your sales
Any revenue your business is generating can be used to pay off your debts. Therefore, now is the ideal time to boost your company’s sales. Whilst this may only present a short-term solution, offering loyal customers discounts on your services or having a sale on your stock can boost your incoming cash flow.
3. Contact late-paying customers
If your business uses a deferred method of payment such as invoicing clients, you could potentially be waiting for thousands of pounds in late payments. Whilst this is the standard payment model for many freelancers, it can cause problems with cash flow in your business if clients fail to pay on time. If your business is struggling with debt, contacting clients to remind them to pay you for your work could release some much-needed funds.
Write a list of outstanding invoices that clients still need to pay and start with contacting the customers you invoiced first. Reminding clients to pay the money they owe your business could provide you with some quick cash to put towards repaying your debts.
4. Prioritise debt payments
It’s important that any extra money you’re able to raise goes straight into paying off your business debts. However, remember to pay for your essential business outgoings first, before allocating funds towards your debt. Failing to pay your suppliers or to put cash towards necessary daily business expenses will only lead your business into further debt. You should aim to make payments towards the debt with the highest interest rates first to maximise the effectiveness of your payments.
5. Contact creditors
Whilst it can be tempting to bury your head in the sand when you’re facing the stress of debt, contacting your creditors can actually help your situation. Explaining your debt issues can encourage your lenders to lower your interest rates or implement a payment plan to allow you more time to pay off your debts. Your creditors may even reduce your overall debt to a level that’s more manageable for you to repay. Be proactive and contact your creditors to devise a feasible action plan and get your business out of debt.
6. Consolidate your loans
Consolidating your business loans allows you to transfer the debt you owe to several creditors into one single long-term monthly payment. Taking this step to consolidate your debt into one loan as opposed to several will usually result in savings and more cash for you to put towards your debt.
You may also want to consider how to generate further funding to grow your company and prevent future debt. Read our guide on innovative ways of funding your small business in 2017 to learn new ways to advance your business and maximise your profits.