For many business owners, running your business with debt has become the norm. Many business owners take on more debt to resolve cash flow issues and pay existing debt. What this means is that the debt cycle cannot end and that they eventually need professional help or the business will fail. The important question is "How can I reduce and even get rid of my business debt?" In some cases, the answer is you can't or you shouldn't. But, in many other cases, there are ways to cut expenses, reduce debt, and start a different cycle of positive cash flow in your business. Keep in mind that ridding yourself and your business of debt takes time, and a real commitment.
There are three main steps to take before emerging victorious from the stress and burden of your current debt situation. Start slowly and be patient and focused. Once you have, you'll be on the path to a debt-free lifestyle and financial freedom.
Step One – Take Control
Take a look at your business' financials. Look at your profit and loss statement for this year and the year before. If you don't know how to get one or read one, ask a professional. You need to know where you were financially, where you are now, and where your business is heading in order to evaluate the financial health and take control. Know the types of debt that you have – secured or unsecured. A secured debt is one that can be taken away should you fail to pay (property or inventory, for example). Conversely, an unsecured debt is a loan not secured by any underlying asset or collateral. It poses a greater risk for the lender and, for this reason, carries a higher rate of interest.
Once you segregate the type of debts in the business, calculate the total amount you owe to all of your creditors. Go through all your paperwork, bills, and statements and look at the terms including interest rates and time to pay that debt. Create a chart or spreadsheet outlining each debt and its current balance. Now the numbers are clear and right in front of you. If you can't do this, hire someone to do it for you or find a business mentor to work with you to get these numbers and information in a readable and understandable form.
Step Two – Reality Check
Now that you have the facts, get a good look at the "real picture" of your business' finances. Maybe up until now making minimum payments on multiple credit cards has worked for you. How are you paying your bills each month? Are you using credit to do so and what's the cash flow like in the business? Know if your funds ebb and flow with certain times of the year and know if you need to save for that, or use loans to carry you through those times.
For the next 30 days keep track of every single expense put on your business credit cards or lines of credit– bills, contractors, supplies, a cup of coffee, lunch.. You'll be surprised to find out how much you actually charge each day and which expenses are not really a business expense. Try to identify areas that can be cut back on and eliminate unnecessary purchases wherever possible. See what supplies you can replace with cheaper alternatives, check any reoccurring subscriptions being charged to the company cards and cancel them, see what items you can cut back on (or cut out completely) and eliminate expenses that aren't business expenses. The money you save can be applied toward what you currently owe on the cards and may even help to pay down any outstanding business loans. Your new financial awareness will empower you and help you refocus the goal of your business, which is to make money and not to accumulate more debt.
Step Three – Just Do it!
The hardest thing to do, is make a plan and stick to it. But if you really examine your business' finances and stick to a strict budget and plan to pay the debts off, you will see the improvement it will bring to your business. Not only will you be able to pay down those large loans and credit cards, you may even be able to build up a cash reserve for your business, which can come in handy during those months when receivables are low.
Just as with any diet, the longer you stick to this plan, the better chance you have to really get the results you want! If you are seriously over your head with business debt, consider consulting a professional..