How can you make your small business grow into a successful large business? By avoiding the money problems! It can be a shortage of money or having to pay a huge debt instalment every month while dealing with the running cost. The majority of small company owners dream of multiplying their revenue as soon as they enter the business world – However, it doesn’t work like that. Generating even more than what you invest can be a big deal at the start.
- Employee wages
- Risk control
- Running cost
- Occasional cost
- Insurance money
- Stock and supplies
There’s so much that requires spending money. But then, you also need to focus on balancing and maintaining your business Equifax credit score for more work and funding opportunities. And to do so, most of the owners fall deep into the debt trouble that their businesses find it hard to survive. No matter how stressful and life-sucking your debt situation, ignoring it won’t make it disappear. In fact, it will only become a giant ready to gulp all your hard work and effort.
So, how can you pay down your debt fast without affecting your business? There are many ways! Want to know? Keep reading!
How to Get Over Business Debt In Canada?
Many customers tell us that they want to pay down their debt or eliminate it completely, but they aren’t sure how or where to begin. Unfortunately, there isn’t a single “optimal technique” to get out of debt quickly that is perfect for everyone. There, we said it! However, success lies in your constant effort, and the more tips you try, the closer you’ll get to your money goals.
So, here are some suggestions and tips to help you pay off your business debt faster while also saving money on interest.
1. Create A Debt Timeline
Christopher Woods at LF Group explains that being strategic about the debt duration and timelines can help pay the installments quickly. People tend just to pay whatever they can every month, hoping to deal with the situation effortlessly. However, what happens actually is they fall short on money as time goes by in managing the debt and their business. Here’s what you can do:
- Analyze your debt condition and fully understand what you owe
- Calculate the interest rates or any additional fees you have to pay every month
- Breakdown the terms of your business or credit debt
- Comprehend the deadlines, closing dates, and other important things about your repayment
After all that homework on your business debt, you can better understand your situation – what you owe and what you need to pay! Then, design a fair ( realistic and achievable) payment schedule for your debts and begin paying them off one by one. If you have many loans or credit cards, it is wise to direct the extra payments to the loans with the highest interest rates. Moreover, this is your most expensive debt, and paying it down as quickly as possible will save you the most money.
2. Cut Down Your Expenses
Of course, you need to increase your revenue (we’ll discuss that later in our guide), but you also need to reduce whatever expenses you can. According to Will Kenton, a business needs to reduce bad costs to generate more revenue. Like, the ones taking a toll on your budget but aren’t helping much in your earnings. Instead, you can put whatever money you save by cutting unnecessary expenses toward debt payments to ensure that your company’s debt is paid quickly. You never know; small monthly expenses can add up to large savings in the long run.
- Bad costs are those that squander resources that do not align with the company’s growth goal. So, it’s better to put a pause on them until you pay all or at least most of the debt.
- If your company offers meals to the employees, you might want to cut down on breakfast or lunch for a specific time!
- You can cut some business running strategies or marketing plans that aren’t working in your favor.
- If there are boundless slips and faults in your business production causing you to spend extra money, you should reduce risk and errors by taking necessary preventive measures!
You have to identify the sole cause that puts your company into debt. And then you can try and take measures to control that specific reason. For instance, if you spend too much, cut down the excess. Or, if you don’t follow a plan to grow your business, now is the time to do that. Do you want to know how to create a budget that can help you pay debt and generate more revenue? Read our next tip:
3. Evaluate Your Current Numbers
You’re missing out on great opportunities to save costs and invest money if you don’t plan, track, and record where your money ends up each month. If you believe you’re on the right path, here’s what you can do to check statistics:
- Review past records: Analyzing your last 12 months (or even 6 to 8 months) data can help you get the record straight. Start by looking at your bank cards, credit card reports, and every spending statement.
- Calculate debt: Evaluate and compare what you owed initially and what you’ve managed to pay in the past few months. It can give you the right answer whether or not your ‘no budgeting’ tactic is working for your company or against it.
So, if you fall in the second group with no substantial growth chart, here are some budgeting and planning tips you can try:
- Keep It Simple: Bench explains in their research that a good budgeting plan is always basic yet effective, with strategies calculated after proper business analysis.
- Estimate Your Revenue: Calculate the total amount of sales you generate every month and year to get an idea of where you stand currently!
- Calculate Your Fixed Money: It is an average of the costs you must spend every month on certain things needed to run your business. One thing to note here is that you must include every unavoidable spending (even if it’s a few bucks) in the fixed money budget.
- Compute Your Variable Spendings: These fluctuate based on production or sales volume and are directly linked to “costs of goods sold” or anything associated with the manufacture or purchase of your company’s product.
- Figure Out Your Bad Costs: You need to mention anything that’s taking money out of your total revenue, including the bad costs. However, these are the spending you can avoid to save more money!
- Sup Up Your Total Cash Flow: Measure the total amount your business account had at the start of the month and then recalculate it at the end to find your cash flow!
The easiest way is to create a summary chart with the categories mentioned above by assigning realistic values to each. This way, you can measure whether your budget was right or wrong for your business revenue and growth.
4. Follow Debt-Reduction Methods
As we mentioned at the start, the more strategic tips you apply, the more your business debt will reduce. However, your business still needs to follow a proper debt-reduction method to hit the strike. Pick a tried-and-true strategy to pay off your debt after you’ve organized it. Either of these options will help you pay off debt but choose the one you believe will be the most efficient and feasible for your business.
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Do it the spartan way!
Create a budget plan by outlining the absolute essentials. You must also mention the things you won’t spend money on (bad costs) until your debt is fully paid. This type of strategy can work wonders for a business that falls more into the ‘saving’ category. Like all the owners and employees are on the same page regarding the business. Moreover, they want to try everything they can to cut down the costs and get the business again into a stable state.
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Follow the percentage method!
The second method involves dedicating a ‘percentage’ of your profit entirely to debt management. Of course, the amount your fix will entirely depend on the profit you earn and the revenue you generate. However, it ensures that whatever your company’s financial situation, the planning and budgeting acknowledge the debt payments.
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Go for the 50/30/20 rule!
If you’re still figuring out things for your business and don’t know which method to choose as your debt-reduction strategy, picking a 50/30/20 rule goal can be your ultimate choice. How much profit your company generates, how much spending you need to make on the running, and how much you need to set aside for debt installments play an essential role here! According to the creative CFO, here’s a basic breakdown of this method:
- Spend 50 percent of your money on necessities
- Use 30 percent budget on wants
- Utilize the remaining 20 percent on debt repayment
Now be clear on one thing, you need to choose a debt-reduction strategy at the start when you’re constructing a budget for your business. And only then can it be beneficial in paying down all the loans and debts.
5. Try The Negotiation Method
An effective way of paying down your loan and credit debt is by talking to your lenders and service providers about the terms and conditions. The goal is to understand the loan and find if there are any loopholes. Of course, we aren’t implying to do anything threatening or illegal but really know what you can benefit from.
- Ask the loan provider if there’s any negotiable interest or closing fee
- You could ask for discounts on certain materials and supply bills if you were a loyal customer who paid timely payments
The goal is to find a mid-way that allows you to negotiate your remaining debt payments.
6. Try Credit Debt Consolidation
If you believe nothing is working in your favor, even after trying endless methods and strategies, talking to a professional might be your only chance to get rid of the debt. One way is to get advice from a credit professional who can help you build a plan or give a better understanding of all your current debt-reduction strategies.
- For example, if your company has various debt payments owed to different lenders, you may choose to consolidate your debt.
- Although debt restructuring companies are frequently chastised for being deceptive, if you can identify a good consolidator, you may be able to minimize the overall amount you owe.
- You can get huge funds for your loan and then use that money to pay down all your other debts.
Debt consolidation, according to my money coach, is a method of combining loans and paying off the smaller ones all at once. You could, for example, go into enormous debt to pay off all your small loans. As a result, rather than juggling many loans, you’ll just have to deal with one in the end. Of course, this might not work for your business, but it’s better to seek professional help if you have already tried everything possible.
Bottom Line
Nobody knows the importance and value of managing finances more than a small business owner. They have to go through the struggle daily to make ends meet while trying to generate more revenue and earn more profit. However, sometimes it can be too overwhelming to the point that it starts feeling unbearable. Next thing you know, you give up the business you built after so much effort and struggle.
Now you don’t have to give up on your business dreams!
Yes, just because there’s a debt you need to pay, you don’t need to shut down your business or even sell it to make the payments. Instead, you can make some small changes in your daily business budget that can make huge differences in your total debt. So, give this guide a read and learn how you can manage your business debt without stressing it.
Interesting Related Article: “Debt Solutions to Common Debt Problems“