How to reduce business debt in 90 days
For every business owner, resources and money translate to profit and business improvement. Hence, there is always need to free up more money to produce a better result.
Business owners often target making higher sales as a strategy to improve business results, especially in times like this, when business is slow and many start-up companies and small enterprises are experiencing a stand-still in business and profit.
However, reduction of debt in any business venture is one sure way to increase its profitability, and although this often comes as an after thought, it is a vital step to healthy business net profits.
In debt reduction, the business owner must also consider their personal debt alongside the reduction of corporate debt. A low debt-to-income ratio enables the company owner to leverage on other sources of additional income for optimization of capital. It will also accord respect and trust from clients and investors.
On the downside, if these perceive a business owner to be unable to pay debt and fulfil business obligations as and when due, they may begin to have doubts about the stability and solvency of the company, as well as its ability to settle debts.
Below are some things you can do to start reducing your business debt today…
1. Differentiate between good and bad debt
It is always important to review the company’s balance sheet when considering the company’s debt. This helps to identify the good and bad debts of the company and provides a basis for a liability check.
A company can consider a debt to be a good debt if it provides a long term benefit and has a potential to generate profit for the company. If most of the company’s debt results from credit without collateral, then this is something to identify and work on.
2. Handle the current debt promptly and decisively
Many times in small companies, business owners tend to rely heavily on credit cards to make up for cash-flow deficit. Documentation of liabilities using the percentage charged ranking the items from that with the highest percentage and monthly payment is the ideal.
An example is a company that has a total of 20 credit cards in active use, and has a yearly percentage rate of as high as 25%, they can jettison all the credit cards in about a year, with diligence and focus, and this will translate an increased interest rate by about 10% and will elevate the company’s cash flow.
3. Monitor the use of credit constantly
There are various software tools for monitoring score and managing the credit with credit-reporting companies.
Some of these tools are thorough in score management as well as examining the score-generating metrics, which include credit available versus credit used.
One major point to note is that business owners get higher personal ratings from reporting agencies when their target credit usage is below 9%.
4. Obtain strategic new debts
Some debt can be good, and with good planning in business, obtaining such debts can improve the company’s revenue in leaps and bounds and by taking on these debts, you can cross-leverage on debts and not take on additional current burden.
An example is the Bounce Back loan that the government provided in 2020 for small business owners and growing business.
Although this was a loan, it interest rate was low and it had an option to pay over the span of 10 years, this meant it could have been used to repay higher interest loans which were causing issues.
5. Take up grants if they’re available
Additional funding can also come from taking grants and you should not rely only on loans.
Most often, when a company is of benefit to a community, regional organizations provide grants to fund their basic innovations. Hence, companies that are interested in these grants must qualify in order to enjoy an influx of funding to improve their businesses or offset debt.
6. Form mutually beneficial relationships with the lenders
Lenders are always searching for new clients in the market and as such, you have various options open to you as a business owner.
Before selecting a partner, it is wise for a business to adequately and diligently perform a background check, and once they form a relationship, they must nurture it and build trust.
A fact is that community credit unions provide greater services than banks and are more involved in seeking for long-term relationships that with bases on personal interactions. These relationships can be of use when the company needs debt-restructuring and other services such as loan service optimization.
7. Reconsider or renegotiate your current debt
The best time to reconsider your current debt is usually when there is an economic meltdown. In such situations, lenders are more prone to consider a restructuring or renegotiation of interest rates and loan payments, using the federal rates as a guide. They will also likely be able to access programs that support the present economic realities.
Struggling with business debt and need some free advice?
If your business is struggling, call us on 0800 975 0380 or email [email protected] today to take advantage of a free consultation with one of our insolvency experts.
We will be able to discuss the options available to you and determine the most appropriate step for your company.
With offices across the UK, you’re never far away from expert and confidential advice.
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