For any business, the worst feeling is to have a debt. Having a business debt is even worse for a small business with their limited capital and financial capabilities. It can lead to decreasing cash flow, losing reputation, losing the business altogether, and bankruptcy. It is one of the worst situations a business irrespective of their size can find themselves in.
But you cannot ignore a business debt. If you do so, you can get into deeper trouble with debt collection agencies. Also, the creditor may file a lawsuit against you. As a small-scale business owner, you might be wondering how to manage your debt or how to ensure you don’t have to deal with a debt collection firm.
You have to be realistic with this, as a business you will need to acquire loans at some point. But how to not let it become a debt or lead to bankruptcy? In this article, we will look at six ways that can help with this.
6 ways to eliminate debt or manage debt for a small-scale business.
1. Monitor your budget
The first step you need to take is to monitor and understand your budget. You need to understand where the money is going and how much you are bringing in. So, go through your accounts and budget, and get an idea of monthly or annual expenses.
Figure out on what items the company is spending money on? Whether you are spending on the right things, or it is an expense that the company can cut back on?
Figuring out all this will help you get a clear understanding of your current financial status. Once you know that, figuring out a plan to settle the debt will become a bit easier.
2. Don’t neglect ‘pay with cash’ option
This option might not work for everyone. But for whom it does, it is a great way to ensure that you don’t keep increasing your debt. It is a matter of changing methods when it comes to covering expenses for your small business. You might use a credit line or business credit card for payments, but if you have debt, and you continue to do this, it will increase the load. Also, it will make it impossible to pay the entire credit card debt on time.
Thus, keep some cash aside from your budget to pay for procuring certain things like equipment or so on. You can also use a check or other cash equivalent so that the whole burden doesn’t fall on credit lines.
When your debt is increasing, you have to make some tough decisions. A business needs loans at various points of time, so budget cuts for other things is something you should look at. Take a look at your budget, what operational costs your business can survive without? Are you paying vendors too much? Do you deal with vendors who don’t pay on time? Or so on?
You can take stock of things, like a subscription that you rarely use, or you can cut back on leisure items for a while, or so on.
4. Deal with debtors
You have a debt, and you need cash to pay it off. One way to ensure that you do that is by making sure that your debtors pay you on time. For instance, if you have a client who took stock on credit, and is not paying, is strict. Send them demand letters or hire an international debt collection agency so that you recover your money on time.
When you get your money on rime, it is easier to pay any debt you have or keep the cash flow intact.
5. Negotiate for more time
It is not a long shot as some creditors may be open to negotiation. You can either ask for a lower interest rate or more time to pay off the debt. Also, you can try to consolidate your loans into one. It helps with the reduction of monthly costs which doesn’t harm your credit score.
These six steps will enable you to repay your debt on time. If not, then you can file for bankruptcy or try another method which a debt management company can help you with. Even a debt collector can help you pay the debt on time, as they can provide you with payment options, like negotiation or payment plans. So, don’t turn a blind eye to a collector calling you to recover the debt.