Easy Ways to Reduce Business Debt
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Going into debt as a business owner isn’t always a bad thing. Loans can help you buy equipment, increase your product line, and take on new employees who will add value to your company. Unfortunately, it is easy to get in over your head, especially when your attention is focused on growing. Here are a few tips on how to get out of debt so that your business can continue to thrive.
Generate interest and revenue.
Getting out of debt first requires having more money. This means you’ll have to raise revenue, which first necessitates generating additional interest in your product or services. One of the simplest ways to do this is to create a promotion for your existing customers. One idea: Offer a discount on excess inventory items. When you run a “limited time offer,” you create urgency. This will likely convince many of your customers to make a purchase quickly so that they don’t miss out on a bargain.
Lower your tax liability.
You already know that Uncle Sam plans to get his share of your profits. To use those profits to pay off debt, you’ll want to lower your tax liability as much as possible. There are a few ways to do this, including registering as an LLC and maximizing your deductions. Each state has different regulations, so research these before you get started.
To get the most out of your deductions, review what the IRS has to say about deducting business expenses. Don’t forget that you can deduct everything from the cost of goods sold to personal expenses incurred in the course of doing business.
Speed up your accounts receivable.
Your accounts receivable is monies owed to you. Although you typically have payment terms in place, often 15 to 30 days, many customers will wait until the last minute to actually settle their accounts. This can leave you with thousands of dollars in unrealized earnings. Encourage your clients to pay on time and speed up your accounts receivable process by first invoicing on time yourself. You’ll also want to make sure that your customers understand your late payment policy and that you plan to stick to it.
Reduce your expenses.
Getting out of debt also requires that you spend less on extraneous expenses. American Express notes that there are several ways to do this, including going paperless and buying in bulk. If you have unnecessary office-related overhead, you may also consider moving your workforce to a remote platform. Instead of meetings in person, continue to use Zoom or other online meeting software to save on travel expenses. Before you get the idea to start laying off employees, talk to them about the perks they wouldn’t mind losing if it meant keeping their jobs.
- Prioritize your debt. Pay off accounts that are most past due or have the highest late fees. Once each debt is paid, take the money you spent each month on it and channel it into the next largest one and so on.
- Negotiate. Contact your creditors, explain your situation, and ask for better terms. Remember that they are invested in your success, so be open, honest, and reasonable with your request.
- Consolidate. Consolidate your business debt into one loan. This makes it easier to keep up with your payments, and you may be able to find a new loan with a lower interest rate.
- Hire a bookkeeper. A bookkeeping service will help you keep tabs on your cash flow. A-American Financial Services also provides data entry training for staff so that all of your expenses are coded correctly and your records maintained.
- Go back to school. To gain more insight on reducing debt, you might want to consider earning (or furthering) a formal education in the business realm. If you’re worried that working towards a degree will negatively impact business operations, fear not: An online degree will allow you to stay flexible with your schedule so you can keep your business running. Business courses will teach you key skills like accounting and operations management, which you can then apply to your business and help it thrive.
Debt is a necessary part of running a business. But sometimes, it gets in the way of your goals. Look for ways to reduce or eliminate unnecessary expenditures and increase your revenue. This way, you can get out from under the dark veil of debt so that you can see your business’s future clearly and fund it every step of the way.
ABOUT THE AUTHOR: Easy Ways to Reduce Business Debt || Brittany Fisher from Financially Well.