A 2021 report shares that 77% of Americans have some form of debt. This can range from credit card debt and student loan debt to the debt that comes with having a mortgage or financing a new car.
Okay, that’s personal finance. What about small business finance?
Businesses can incur a lot of debt from buying materials in advance before they make a profit selling their products. Having your debt under control and not paying fees for missing payments is the key to not incurring more debt.
Do you want to be debt-free with your business? Keep reading for more tips that you can get started on today:
Budget, Budget, Budget
Budget is certainly not a buzz word but it is extremely important to the financial integrity of your business. Without a budget, how can any business track how much they are spending in comparison to their cash flow? The last thing you want to do as a business owner is find out that you spent money on a new computer and now can’t afford to pay a bill that helps your business run.
Budgets take time to develop and shouldn’t be saved for the last 10 minutes of a meeting. Once you get your budget right, it will be easier to follow for the months to come. Making decisions based on your budget becomes much easier when you know where money is coming in and going to.
Figure Out What Debt Is Costing You the Most
Is your building contract your biggest expense? What about the office furniture you bought?
Find out what debt is costing you the most and target that first. If you own your office space, this may be the biggest expense. It will be hard to eliminate this monthly form of debt if you are leasing the building from someone else. Taking your biggest expense off the table can be a huge relief once it is paid off. You no longer will have to worry about the big payments every month and can just focus on the more minimal expenses and allocating your funds toward paying those off.
Get Help From the Professionals
Who is the best person to talk to about debt? Consulting a professional in the financial world that can help you manage your business debt and present you with options of how to fix it. Debt consolidation is a popular strategy if you’re the owner-operator of a bootstrapped, one-person shop. You can work with companies like Strategic Consulting to get a better idea of the best route for you based on the forms of debt you’re carrying.
But what if you’re not financing the business with your personal credit cards? The fact is, there are debt consolidation companies who work with small businesses, too. Your CPA should be able to help you find the best solution for your needs.
Set a Goal
When would you like your business debt to be paid off by? How realistic is that to happen?
Setting a reasonable timeline for your business to be debt-free can help serve as accountability along the way. It may be unrealistic to be debt-free in 6 months, but very possible within a year. You know your business better than anyone and can make a knowledgeable estimate on when you will be able to reach that goal. Sharing the goal with others can also help hold you accountable to hitting it by your desired date.
Look At Lower Interest Rates
Are there lower interest rates available for your current loans? Talk with your bank about options for a lower interest rate moving forward. There may not be options available but you won’t know unless you ask.
Lowering your interest rate by any amount can significantly affect the amount that you will be paying. An interest rate of 5% on $500,000 for example is less to pay than an interest rate of 8-10% for that same dollar amount.
Reinvest Your Tax Refund
Did your business receive a tax refund this year? Are you typically receiving a refund year after year?
Instead of spending this refund on new items for your business, use that money to pay directly toward your debt. Think of it as money you were not expecting, given that you had already paid the government that amount. Using these funds to pay for your debt can save you from spending on upgrades you may not have needed in order for your business to continue running successfully.
Does your office have an old storage room of desks, chairs, and other miscellaneous items? You can make money off of selling these items and put the profit toward paying your debt.
Plenty of people that work from home are not looking to break the bank on a new setup for their home office. Making some money on items that are just collecting dust in your storage room is a win-win for everyone. You will also open up more space in your office too. Once you clean your office, you will realize how little you need materialistically for your business to thrive. There’s no need to do a complete office renovation right now if your current setup is getting the job done. Wait until you can pay for that remodel and purchase it then.
Develop Tunnel Vision
Becoming debt-free is not an easy task. This becomes even harder when trying to do it as a business. A fierce determination and vision is required for this effort to be a success.
Run sales contests. Find new, more affordable ways to market your products. Don’t spend money on anything extra that isn’t absolutely essential to running your business.
Cut the expenses that aren’t benefiting your business.
It will be challenging but the reward of having a business that is debt-free and prepared with a savings for any financial challenges in the future will set you apart from most businesses.
Now that you have read a few tips on how to become debt-free, why wait? Each day that passes is an opportunity to pay off your debt and take a step closer to your goal. Check out our website for more informational business finance articles like this one.