When you find your business spiralling into debt, there’s always a risk you’ll panic and completely lose your nerve. Although this is an understandable reaction to the situation, it certainly isn’t going to help you get a hold on the situation. Instead, you need to put a plan in place and start thinking about the changes within your business you can make that will help you to climb out of debt.
If you’re not sure what to do and need a helping hand, you’ve certainly come to the right place. We’ve got five useful tips that will help you get your finances back in the black.
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Understand the details of your businesses financial situation
First of all, you need to get a better idea of exactly what you’re up against because only then will you be able to get things back on the right track again.
To do this you need to go through all your debts and organise how much you owe and to who. You can do this by yourself or with your businesses accountant or an external financial advisor (if you don’t know what you’re doing, having someone to help you through the process and tidy it up a little for you can really help).
Start by paying the debt with the highest interest rate
When you understand your financial situation and you want to move forward in a positive direction, be sure to start paying off the debts that have the highest interest rates attached to them. “This is important because these are the debts that are costing your business the most each month” says Lending Expert founder Dave Beard.
You will start to get on a roll as you pay off debts, start to feel a little freer and generally more confident about the future state of your finances. It would be a mistake to think that you can just start paying off your businesses debts randomly and sporadically without giving much thought to which ones out to be wiped out first.
Never pay off less than the minimum
You’ll only find yourself getting further and further behind if you don’t even meet the minimum required payment on your businesses debt repayments. So make sure that you look at each debt and make a note of how much the minimum amount is you have to pay. Then you can make sure that you’re covering all the minimums, while ideally paying more than the minimum as per above.
This might mean cutting back in other areas, but we’re going to talk about that more below, so don’t worry. The main thing is that you keep working towards wiping out those debts (be aware if you don’t cover the minimum repayment when the payment date comes around each month, you will start slipping further and further behind).
Get rid of regular outgoings that aren’t necessary
All businesses have regular expenditures that are not really justified. That’s fine when your businesses finances are healthy, and you’re not trying to fend off debt. However, when your sole aim is to clear your business debt problem you need to cut your businesses expenditure as much as possible.
When looking for these outgoings, first look at things like monthly subscriptions (software, databases, other services…). Sure, you probably want to keep these things, but when paying off debt you need to get rid of the non-essentials.
Sell unused assets
Many small businesses have acquired assets that end up sitting around and not being used, there is usually a significant amount of capital that can freed up by selling these items (and go towards paying off the businesses debt). Typical high value items you can sell include computer systems, furniture, camera/audio equipment and more depending on your business. You can quickly offload these items via Ebay or local auctions.
A final note on getting your business out of debt
The key to getting your business out of debt as quickly as possible is to understand the financial situation properly, make a clear plan and timeline for repayment, cut all non essential expenditures, always pay the minimum repayments, sell unused assets and pay the high interest debts first. Goodluck!