How to Get Out of Business Debt in 5 Steps

The concept of debt is so ingrained in our culture that most people accept it as a necessary part of life. Many individuals accumulate personal debt, including credit cards, student loans, car payments, and mortgages. Another type of debt that may affect small business owners at one point or another is business debt. 

Businesses in debt aren’t necessarily irresponsible or on the road to bankruptcy. Small business debt can exist for perfectly valid reasons. A small business owner starting their company might need loans to purchase inventory or other necessary goods. Others may accumulate business debt to pay a mortgage on a retail space. 

A company in debt means that it borrowed money for business purposes. However, it's essential to understand how reducing debt strategies are a wise decision that can put you on the path to better financial health. Debt in business can be tricky to resolve, depending on the lenders you’ve borrowed from and the total amount you owe. In this blog, you’ll learn how to get out of business debt in five steps.

You can eventually rest easy knowing that you’re no longer in the category of businesses in debt.

Step one: Assess your current financials

This first step in getting out of business debt should be relatively easy as long as you understand and follow some simple record-keeping habits. If you keep good records, your small business debt will be much more manageable to overcome. Plus, you'll be facing a much bigger workload during tax season. 

You don't need to be a financial expert, but you should know the money flowing in and out of your business. A basic understanding of your financials will include the following practices:

• Creating a budget - It’s essential to make a budget, so you know exactly where you plan to spend your money. Sometimes, your spending goes over or under budget, but planning ahead will help lessen the impact of these unexpected situations.
• Understanding your cash flow - Regularly reviewing your cash flow statement is a simple way to stay informed of your business's financial health. This document gives you a point-in-time snapshot of your company's earnings and expenses.
• Identifying your current assets and liabilities - The most apparent practice to help with business debt is to list your assets and liabilities. Assets refer to things that your own and others may owe you, such as accounts receivable, and a liability is anything you owe someone else, whether a loan or accounts payable.

Step two: Create a debt repayment strategy

This next step involves tackling the debt, but be aware that this might take some patience. Create a strategy that's both easy to follow and realistic. You may be tempted to set high goals for repaying your business debt as quickly as possible, but you may feel discouraged if you attempt to take on everything at once. Here are some tips to use in your strategy:

• Prioritize debt with a high interest - Identify the debt with the highest interest rate and plan to pay that off first.
• Negotiate with lenders - Reach out to your lenders and ask if you can adjust your interest rates or payment schedules. It's worth negotiating your debt to lower your debt or create a more favorable payment plan.
• Simplify with debt consolidation - If you've made multiple payments across various loans and debts, consider small business debt consolidation. This process combines your existing loans into a single, easy payment. However, this may result in a higher interest rate, so it's essential to understand the pros and cons before deciding to consolidate business debt.

Learn more about how to consolidate business debt

Step three: Reduce business expenses

When you're a small business owner, you have control over your business expenses and can therefore cut costs when needed. If you're ready to reduce debt strategies, it’s time to decide where you can cut back and save some money. Consider the following tips:

• Eliminate unnecessary costs - Some expenses are not vital to your business. Look at your expenses and categorize everything into needs and wants. Certain expenses will be necessary, such as payroll, business taxes, and the cost of goods. Other expenses like advertising or traveling to events might be good marketing opportunities, but you can do without them while you pay off your debt.
• Choose budget-friendly suppliers - If you're happy with your current suppliers and have a good working relationship, negotiate for better rates. On the other hand, consider shopping around for a more affordable supplier that offers a comparable product or service.
• Save on energy - Whether you work from your home office or have a retail location, consider how you can save on energy costs. Use energy-efficient lightbulbs, set your thermostat to a reasonable temperature, and shut down electronics when unused. These may seem like simple and indifferent practices, but every little bit can help!

Step four: Boost your revenue

Small business owners are likely interested in making a profit and boosting their revenue. Businesses in debt may have a little more urgency in increasing their revenue, so here are a few ideas that can help improve your revenue:

• Attract new customers - If you already have a good customer base, research and discover how to expand and reach those who may need to become more familiar with your business. Word of mouth can be a powerful tool, so there's a way to encourage your existing customers to bring in new leads.
• Expand your products or services - Depending on your business, a new product or service might be a cost-effective way to increase sales. But remember, the idea is to reduce your small business debt, so don't take out another loan to expand your product or service offering.
• Upsell and cross-sell - These strategies are often used in the restaurant industry because it's easy to suggest items that customers buy. Take some time to evaluate your current products and see where there's an opportunity to upsell or cross-sell to another item. 

Step five: Consult a professional

Lastly, one of the most effective ways to get help with business debt is to work with a professional who can advise you on the best strategies. A financial specialist like a CPA can show you how to maximize savings in your business operations. It helps to have professional guidance on activities like bookkeeping and payroll because many small business owners may need to be made aware of unnecessary spending. 

A business debt specialist at 1-800Accountant can also help guide you through government assistance programs that may help businesses in debt. Programs will vary based on your location and type of business, so it’s best to work with a professional that understands these requirements. Contact us today and learn more about our business debt services.