Is your business dwindling as a result of bad debt and you need help? If YES here are 23 smart tips on how to reduce business debt and save your business. Business involves risks and to run a successful business, you must have to take calculated risks. But sadly, no matter how thorough you are with your calculations, you would definitely make some bad business deals that would never look well on the books.

There are a lot of ways an entrepreneur can rack up debts in a business and some of them are taking out loans and overestimating inventory. The U.S. Small Business Administration (SBA) has been known to say that poor credit management, lack of money and personal use of business funds are some of the top reasons why small companies pile up debt for themselves.

Businesses that lack money to cover basic expenses such as rent and payroll can quickly spiral into delinquency or, worse, bankruptcy. If you find yourself unexpectedly further in debt than you has initially estimated, don’t panic, there are options available that can help you out. Listed below are business tips that can help you reduce debt and revitalize your struggling business.

23 Smart Tips on How to Reduce Debt and Save your Business

  1. Assess Your Debt

The first thing you should do when you find out that your business is being weighed down by debt is to write out all your debt. Writing them down would help you get a clear picture of how much debt you have and your chances of paying them off. You also need to calculate your debt-to-income ratio, which will show you if you have enough working capital to continue servicing the debt.

Once you know where you stand, you can make a plan to keep yourself from being overwhelmed by the debt. Conventional wisdom says to pay off the most expensive debt first (or the one that is costing you the most in interest and fees). No matter how you choose to attack the debt, make sure to make timely payments on each account.

2. Tackle your business budget

If a business is facing debt issues, the first place to start tackling the issue is from the budget you made for your business. If you are falling behind on monthly payments, dig out your financial plan and adjust for unexpected changes in cash flow. Your business budget helps you identify your income sources, fixed costs and variable expenses in order to see where your cash flow problems are coming from.

You can also think of hiring accounting experts to help you look over your budget to see if you are doing something wrong. You can also automate the budgeting process using accounting software like QuickBooks to track money flowing in and out of your business. Ultimately, revisiting and revising your budget will help you better manage costs and form an action plan for reaching your debt-reduction goals.

3. Decrease your daily business expenses

The next place to look at would be the expenses your business incurs on a daily basis. Your expenses may be the reason why you can’t seem to pay off your debt. You should find out which expenses you can do away with versus services that are necessary for the daily operation of your business.

For example, do you pay for subscriptions that you use infrequently? Are there professional memberships you can suspend temporarily until you get your financial house back in order? Reducing these expenses would help you save more money which you can use to pay off debt.

If you’re leasing an office, consider subletting unused space or downgrading to a smaller work area to reduce your monthly rent. You may also be able to negotiate reduced prices and flat rates with certain vendors. For example, software providers often provide discounts for bills paid annually versus month-to-month. Your financial statements can be particularly helpful in pinpointing expenses contributing to your debt.

4. Know Your Numbers

Don’t just be familiar with the numbers on which your business run on—know them. Knowing them means that you know the cost of each of your raw materials, labor, rent or lease costs, and everything else. You should also know what each item costs down to the penny, and the interest rate on each of your debts. If you don’t, then there is a chance that you are paying too much for something.

5. Be smart when filling your orders

Sometimes, you may be tempted to stock a poor-margin item that gets people into your store, but as a general rule, if it’s not getting you to the margins that others in the industry report, it may not be worth your time. Sales that result in ultra-low margins are usually costing you money. Identify unprofitable sales and eliminate them or look for a lower price from suppliers.

6. Negotiate with Lenders and Creditors

In addition to reducing expenses and attempting to increase revenue, find ways to make your debt cheaper. You could try the following:

  • Loan consolidation with clients: A lender may be willing to consolidate your debt into a long-term loan package. Consolidating your loans will offer you manageable monthly payments and more time to repay everything.
  • Lowering interest rates: Obviously, you can’t just tell lenders to lower rates. But if you’ve been making consistent monthly payments on an installment loan and your business is doing okay, they may be willing to give you a better rate. For business credit card debt, you could move balances to new credit cards that offer 0% intro APR or free balance transfers.
  • Hardship program enrollment: A hardship program offers your business a longer time to repay debt and lower interest rates. To be approved, creditors want to see financial statements and tax returns from your business. You must prove your company needs better rates and terms and more time in order to successfully clear the debt.

Another option you have is to hire a debt restructuring firm to negotiate on your behalf. Such professionals can help your business extend or change existing credit agreements so you have more time and/or lower payments.

7. Change to cash payment

Credit cards and other lines of credit rack up debts which add up to the debts you already have on you, so you need to transition from the way you pay for business expenses until you get your debt load under control. This method will force you to only buy what you can afford to pay for in cash.

Paying with cash or cash equivalents such as checks helps to eliminate procuring new business debt and prevents you from letting existing debt increase. This option truly might not suit everyone, but it is worth considering if you plan to restructure your debt, especially if you are a small business.

8. Focus on your target debt

The debt with the highest interest rate you have is called your target debt. When paying off debt, it is best you focus on your target debt as they are the ones that do the most damage. Some of these debts are usually credit card debt or bank loans, and the interest rate on each can greatly inhibit your ability to effectively pay down the principle loan amount, this is why you should aim to pay down high interest rate loans first

To start, make a list of all of your minimum monthly payments, and make sure they are covered. Then, look at your highest interest debt balance and determine how much above the minimum payment you can pay each month. This additional amount is sometimes called stack repayment. Once the first loan is paid off, apply that amount to the debt with the next-highest interest. Once that second debt is paid off, take that compound amount to attack the next debt, and so on.

 9. Increase your margins

Each industry has its own benchmark for what are considered strong margins. You need to find out what yours is. You can check with your industry trade group, and once you know it, try to make the necessary adjustments. You can raise your prices, lower your costs, or both.

The goal should be to raise margins without raising your overhead expenses. What are others charging for the same item? Can you purchase more at a significantly lower cost without losing the savings to debt service? These are things you should find out.

10. Generate more income

You need cash to pay off your debt, and if your business is not generating enough to do this, then you are in a dire situation. One way to remedy this situation is to increase your income levels. Some ways you can increase you income in your business is to;

  • Diversify. Can you add an additional product or service to your current offering? Are you reaching all potential customers through targeted marketing? Are there an untapped niche audiences you haven’t considered? Answer these questions and tailor your business to fit in.
  • Raise your prices. Raise prices just enough to maintain the same amount of sales. Be sure to communicate to existing customers before you raise prices, and ask if they’d like to order anything before the change is in effect. This could result in a much needed bump in revenue anyway.
  • …Or lower them. Offer mark-downs on merchandise and discounts on services, especially for loyal and repeat clients in an effort to boost sales. Just make sure not to slash the prices too much that you won’t make up lost cost with increased sales.
  • Get what you’re owed. Ramp up accounts receivables by following up on late payments from customers. You can even present your clients with discounts or rewards for paying fees upfront.
  • Upsell. Is there a way to sell more to your existing customers? Can you offer any incentives or bundle your existing products or services in a way that would entice people to buy more from you? A quick email with a flash sale, a limited offer, or subscriber-only deals could do wonders to increase your monthly revenue.
  • Optimize inventory. If you have inventory that isn’t selling, see if you can adjust your purchasing habits or look for suppliers that will offer rights of return for unsold goods. This will free up both physical space and room for more inventory that might actually sell and increase revenue.
  • Sell your surplus. Look at the things you don’t use—or don’t use to their full advantage—and sell them to people who might. Can you sell unused furniture or equipment on Craigslist? Is there another business that could buy a portion of your company you no longer are passionate about? Note that you must never sell anything you have put up for collateral on existing debt. That’s straight-up fraud and could have serious legal ramifications.

11. Watch Your Inventory

Like your refrigerator at home, some items tend to linger. You may be tempted to put off ordering more of your popular inventory because of this, but you should not. You only need to look for the product that isn’t selling properly and liquidate it.

Inventory is probably where most of your money is tied up, and you are probably paying interest on that stale inventory that everybody has forgotten about. Don’t let it sit in your store unnoticed. Even if you move it at cost or for a small loss, liquidating is better than keeping the money tied up.

12. Re-evaluate your expenses

Many small business owners take the old “you need to spend money to make money” adage to the extreme and get careless. When you are in debt, you need to cut back on anything that isn’t necessary for your business’s day-to-day operations. You have to know where your money’s going, and it’s not enough to just have a general idea of your monthly expenses. You need a detailed breakdown of everything your business is buying.

Maybe you’ve been paying for consultants and other B2B services that haven’t been providing much return on investment, this is time to put those services on hold. Again, the cost of your business trips may be getting out of hand, you need to slash this, while creating other avenues that can simplify travel for your employees.

13. Don’t put a hold on your business

A lot of businesses will make sacrifices that impede their growth, just so they can put more resources toward paying off debt. While this may seem like the right thing to do at the time, but it is a mistake that can have an even more detrimental effect on your business overall.

You must always be seeking growth, and as you grow, debts will become easier to repay. Slowing down is seldom the answer. Don’t miss an opportunity to expand into a new market or roll out a new service just because of your financial situation. A calculated risk could result in a significant increase to your business’s monthly income, helping you pay off your debt faster. Continue to move forward with your business and don’t lose sight of your goals.

14. Check Your Interest Rates

Business owners are still enjoying an economic climate of low interest rates. If you have older debts, you should try to renegotiate the terms and interest rates. It is possible and it is workable.

15. Talk About the Terms

If you’re having trouble making payments, talk to the supplier about extending the terms. You aren’t going to save any money when you do this, but the longer payment period may give you the financial room you need until the product sells.

16. Sell and Lease Back

Do you have relatively new fleet vehicles or other larger items that can serve other purposes for businesses? Sometimes it makes sense to sell the items and lease them back. Your payments on this might be lower. To gauge the payoff that comes from this strategy, you will likely need help from a professional to help you crunch the numbers.

17. Ask Your Employees

You most likely were an employee at some point. You know that the people on the front lines will see things that the managers may not see. Your employees know where money is being wasted because they are the ones running the business hands on. Ask them what they think. They may be skittish about telling you for fear of retaliation, but you need to explain to them why you’re asking and maybe offer a bonus to anybody who helps the company save money.

18. Be Tough on Your Customers

Don’t become that business owner that every customer hates but do insist that customers meet their payment terms. You probably won’t go to battle if payment is a few days late but when a couple of weeks go by, it’s time to start calling the customer to ask for payment.

If late paying customers are a big problem, you may want to add a late fee clause to agreements you have customers sign before you begin work for them. Check with your local professional advisors to find out if there are any laws that regulate what late fees you can charge. Good business relationships happen when both parties feel respected and valued.

19. Reduce staff

Nobody likes to reduce staff, but if your business fails, the reduction in staff will be much larger. Sometimes you have to make tough decisions that negatively impacts the few to protect the many. If there are employees you could do without, think of taking them out. You can consolidate positions by paying one person more rather than paying benefits for two employees.

20. Speak to a credit counselor

Most credit counselors are consumer-based but some work with small businesses. If you are having trouble negotiating better terms, a credit counselor might be able to help you out; though you are required to pay a fee for this service which may further out you in debt.

21. Enlist the help of a debt-restructuring firm

Enlisting the help of a professional debt-restructuring firm is yet another option if previous efforts to climb out of business debt have failed. Debt-restructuring professionals negotiate with creditors and collection agencies on your behalf to formally extend, renew or change existing credit agreements.

The debt-restructuring process generally involves a written contract between you and the debt-restructuring company, as well as the setup of automatic withdrawals from your bank account to settle outstanding debts.

Although a debt-mediation firm typically costs a monthly fee, it’s usually a less-expensive alternative to filing for bankruptcy. Some of the benefits of debt structuring include: extended and reduced monthly payments, reduced (or the elimination of) legal bills, less time spent dealing and negotiating with creditors and collection agencies, gradual improvement of credit with consistent, on-time payments, etc.

If you decide to hire a professional debt-restructuring company, choose a firm that is prepared to work within the payment and time parameters set by creditors. Also, being honest with the debt-restructuring firm on what you can afford to pay each month will help them arrive at a settlement that works for both you and your creditors.

22. Bring on an Investor

If things are really bad, an investor can offer an injection of cash often in exchange for a piece of your company. In general, avoiding this option is best since it involves signing away a portion of your future profits, but if times are really tough, it’s worth considering. However, finding investors is difficult. Don’t wait too long to start looking.

23. Exit the Business

Another very radical way to handle business debt would be to exit the business, that is giving the business up for sale in order to raise cash to pay off your debts.

To exit the business, your options include; selling the business as a going concern, going into receivership, selling off all the business assets (including the business goodwill, eg: the client base) and using the proceeds to pay off the liabilities. Note that this method should be resorted to only when other options are no longer viable, and when it does not make any more economic sense to hang onto the business.

Ejike Cynthia