Businesses are often faced with monetary issues and questions abound with regard to from which resource they should find funding. As a business owner, you could either opt to self-finance or get a bank loan for your small business.
Approximately 50 percent of small businesses face failure or inevitably have to close down, mainly due to inadequate funds, non-reputable credit history, overextending financially, and piling debt, according to the U.S. Small Business Administration (SBA).
Borrowing is not always a risky option, and can make complete sense when you need to bring in cash flow or finance your growth opportunities or carry out the much needed expansion. However, once you are under debt and have a whole lot of liabilities to look after, you need to take drastic and strategic measures.
Here’s how you can keep your business afloat and still pay back loans:
Cut Costs and Reduce Expenses
Whether you are an individual under debt or a whole entity operating at a profit and loss relationship, it is always a sensible option to take a look at your functioning costs. You need to identify and prioritize those areas that are central to your business and relate to your core competencies.
With the advent of new and innovative accounting software you can conveniently forecast the financial implications of cost cutting, which can increase productivity in the long run. Some of the ways you could effectively forecast are:
- You could compromise on your workplace by subletting unused space or sharing a mutual space with someone.
- Unused equipment can be sold off to avoid unnecessary rental costs being incurred.
- Negotiate high prices with vendors and avail discounts to minimize costs.
- By laying off employees. Though it might not be a very attractive option but sometimes it becomes a necessity to keep your businesses thriving.
- When purchasing for office/ business supplies look for cheap alternatives by comparing prices and going for the most economical option.
Use this saved money to make extra payments on debit and credit cards so that the debt doesn’t pile up in the first place. Even if you’re great with budgeting in your personal life, once you step into the corporate world, it becomes all the more important.
Find New Revenue Sources
Just as cost-cutting is crucial to a business’s success, finding new ways to increase incoming revenue should also be considered, as minimizing costs wouldn’t suffice alone. There are numerous ways you could boost sales, thus increasing the ROI:
- Retain customers and increase brand loyalty by offering attractive discounts and incentives that help them save and come back to you to purchase more (repeat clients).
- Attract new customers by holding frequent sales; this may decrease your revenue per product, but it will definitely increase the number of sales in the long-run, accounting for greater incoming revenue.
- Offer mark-downs on merchandise and buy in bulk.
- Penalize clients who pay late and offer discounts to people who pay timely – incentivizing payments is never a bad idea.
Revisit Your Budget
If you have the habit of managing your personal finances well, some of that expertise should carry over to keeping a handle on the cost of business activities and operations. Your business’ financial situation should be something of which you’re abreast, lest you get trapped in the vicious cycle of never-ending debt.
If you fail to pay off your monthly payments, you need to revamp your financial plan and make adjustments accordingly to go with the flow:
- You can track your cash inflow and outflow by automating your budgeting process through accounting software like
- Free of cost business counseling, guidance and online workshops are available to prepare you for handling your business costs.
- Seek professional advice or get in touch with not-for-profit associations.
Maintain Solid Relationships with Creditors
Once you have identified and realized that you are falling behind your due payments, rank your debt payments in order of importance. Tackling creditors and suppliers that are urgent and paying them will certainly improve your credit score drastically.
Creditors can always be approached to negotiate loan-consolidation programs and reach a unanimous consensus on how to deal with outstanding debt. You can share the following details to help them gain a better understanding of your financial position:
- Financial statements like balance sheet and income statement, which will clarify where your business ranks.
- Bank account statements that will establish a reputable image of your business in the eyes of the creditor or lender.
- Existing and previous tax returns.
There’s no harm in trying to work with creditors and you may be able to strike a deal regarding payments. Lessening your burden and getting rid of some debt upfront will help you tackle stress related to other debts in the long run. Empower yourself as a business owner and do not let unnecessary debt sabotage your business plan.
Rachael Everly is a business and finance enthusiast and writer who happens to have a special interest in matters related to student loans and repayment plans.