Is Your Small Business Taking on too Much Debt? Steps to Take to Pay it Down More Quickly

Most businesses must take on debt at some point. That can be a good thing if it’s to help grow the business by expanding operations, purchasing inventory, or taking on new customers. Many businesses need to borrow to smooth over a temporary cash crunch, which is fine if the debt is repaid when revenues roll in again. However, whatever the reason for taking on business debt, if it begins to overwhelm the business, it can spiral out of control, eating up precious revenues and profits.

Few small businesses can survive, let alone thrive, when taking on too much debt. They must have a plan to reduce their debt before it becomes unmanageable. Here are steps businesses can take to get out of debt more quickly:

Increase Revenue

Small businesses have several tools that can be used to increase revenue, including:

Offer promotional discounts: One way to increase sales is to create promotions to attract customer interest. However, over-discounting your products or services can decrease revenue.
Raise prices: Businesses with low margins may be able to increase them by raising prices. Increasing prices could have the effect of turning off customers. But if it is done in concert with clearly demonstrating the value of your products or services, customers will likely pay the increased prices.
Sell Excess Inventory: In times of thinning margins, it doesn’t do any good to keep excess inventory on the shelves, so it might make sense to sell it off with a plan to restock when financial conditions allow.

Accelerate Receivables

Many small businesses offer generous payment terms to attract and keep customers, and it doesn’t take long to realize that customers will take all the time you give them. So, consider shortening your payment terms. The difference between waiting 90 days and 45 days for payment can dramatically change your revenue picture.

Reduce Costs

If your business is accumulating debt, you may have a harder time affording loan payments in addition to funding operational costs. It is essential to determine where your business can make cuts to free up funds to pay down debt. Conduct a thorough analysis of your operational needs looking for anything that can be cut from your budget. If you are successful in paying down the debt, any cuts are likely to be temporary.

Consolidate Your Debt

If you are trying to manage multiple debts, it may make sense to consolidate them into one big loan. That not only makes your debt more manageable, but it also opens the possibility of obtaining better loan terms, such as reducing your interest rate or lowering your monthly payments through extended payment terms.

The big caveat with debt consolidation is that you don’t find a way to cut costs or change your spending habits, which could lead to more debt. Debt consolidation can only work when you take the additional steps to raise revenue or reduce spending to pay down debt more quickly.

 

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