How to Reduce Business Debt: 5 Great Strategies For You

How to get your business out of debt

One of the most common reasons behind business failures is the lack of finances and the lack of ability to maintain finances. Accumulating an enormous amount of business loans can cripple a business if not handled responsibly. Businesses usually undergo debt to scale up or get through a tough time.

It takes consistent strategizing and planning to eliminate business debt. The following 5 strategies are proven to be highly effective for those who own a business that’s in debt – as long as they can stay committed and follow them consistently.

Pay off business debt with these 5 strategies

1. Increasing Business Income

If it takes additional funds to pay off business loans, then it would be wise to increase revenue in any way possible. The most cost-efficient way of increasing revenue is to upsell customers and raising rates.

When conducting sales transactions, offer additional existing products or services to influence the customer to spend more money. As you improve the quality of products or expertise in services, you can justifiably raise your rates. Upselling customers and raising prices do not increase business expenses so they are good ways to start increasing business income.

If your business is struggling, changing the marketing plan you have in place could help lead to more sales. The help of a marketing professional could be an effective way to increase potential sales as they can guide you on where your marketing plan needs improvement.

Spending money is necessary to create more revenue sometimes. If possible, consider diversifying your products or services. You can reach a broader audience of potential customers and boost sales drastically. Trying these income-increasing options could help you eliminate business debt much faster.

2. Cut Down on Business Spending

Businesses that are failing financially tend to overspend in many ways. This not only increases the business debt, but some spending could not be effective to the growth of the business. When it comes to unnecessary expenses, the process of eliminating and analyzing the value of some expenses is the best way to cut down business spending.

First, list all your business expenses and leave no expense unaccounted for. Everything from operating expenses to the coffee should be included in the list. Highlight expenses you are for certain can be eliminated.

If there are other expenses you aren’t sure should be eliminated, then assess the real value those expenses bring. If the return on investment for an expense doesn’t exceed interest rates on debt, then do away with the expense especially if it is classified as unnecessary.

Sometimes businesses have a surplus of inventory from vendors and manufacturers if their customer base’s demand for the products is lower. Sales forecasts may not be completely accurate or business owners just want to be prepared if a spike in sales occurs. But cutting back on inventory to avoid a large surplus could save a substantial amount of money. The money saved can be put toward your business’s debt repayment.

3. Renegotiating to Decrease Costs

To decrease costs, it can be effective to renegotiate with manufacturers, vendors, and lenders to get a better deal. If you have a good relationship with them, then they may be open to renegotiating to keep your business.

When renegotiating with vendors and manufacturers, the two main goals are to get a lower rate and extending credit. By lowering the rate, your manufacturing costs could be lower overall and the money could go towards business debt. If business credit is extended, this could be used to invest in things that could increase business income like new products or new marketing costs.

The debt that your business has with lenders may able to be renegotiated if the lender allows. Inquire about extending loan terms or a lower interest rate to reduce debt costs.

4. Debt Consolidation

If possible, seeking funding to cancel out business debt can be the best option. It reduces the number of debt payments sometimes to one.

Seek a debt consolidation loan specifically to eliminate business debt. Banks or lenders have qualifications that vary depending on the lender so be sure to review what they require. If the interest rate on the loan is high, or the loan term is too short, then reconsider another strategy.

However, if business loans specifically for debt consolidation do not work out, consider applying for a normal business loan. Use the loan amount as you would for a debt consolidation loan.

Be open to inquiring about business loans with multiple lenders to get the best offer. Don’t just limit yourself to banks as there are plenty of private lenders out there.

5. Have a Strict Budget

Following a budget that supports debt repayment is the simplest strategy to help eliminate business debt. If you already have a budget mapped out, reanalyze it to see what could be unaccounted for or what the issue could be if you are struggling with debt repayment. Make changes to your budget and re-create a more effective business budget.

Have a clear understanding of what your debt ratio could be. The debt ratio can determine the severity of your debt obligations. Try to keep it under 30% of your business’s annual revenue.

There needs to be a timeline for debt repayment. Paired with a strict budget, a timeline of repayment milestones can create a solid plan to pay off business debts.

Implement all of these debt repayment strategies and see your business’s finances get back on track.