According to a 2016 study by Experian, the average U.S. small business owner has $195,000 of debt. Some debt is a natural part of doing business. For example, a business loan, line of credit or business credit card can enable you to purchase equipment, hire employees, and finance growth. Too much debt, however, is risky business, especially when it strangles your cash flow and leaves you with little to reinvest into your enterprise, thereby stifling growth. If you’re one of the many entrepreneurs carrying too much debt, here are some tips for getting your business back into a position of strength.
1. Know Where You Stand. You can’t begin to solve a problem without a clear understanding of what that problem is. The first step in tackling debt is taking a thorough inventory and arranging it according to rate of interest and monthly payment. In addition to loans, lines and credit cards, include in your inventory any outstanding vendor payments. Decide which debts to pay off first, prioritizing according to debt with the highest interest rate.
2. Sell More. Once you’ve committed to paying down your business debt, turn your attention to boosting sales. How? Try one or more of these ideas:
✎ Engage with your customers on social media. It’s not necessary to have a presence on every social network, but choose one or two where your target customer is most likely to hang out and that lend themselves best to the product or service you’re selling.
✎ Raise prices. Are there some products or services you may be underpricing? Does your business lend
itself to offering volume discounts? Do research on how to strategically raise prices without scaring away customers.
✎ Institute a customer loyalty program. Studies show that 82% of customers are more likely to shop in a store that offers one.
3. Slash Spending. Trimming expenses can free up money you can apply towards your debt. Here are a few ways:
✎ Downsize to a smaller office or store, saving on rent and utilities. If possible, consider working from a home office or a co-working space.
✎ Unload equipment and supplies that see little use.
✎ Consider buying used equipment in good condition and working order.
✎ Share resources with other businesses and split the cost.
4. Refinance. If you don’t see yourself able to pay off your debt in full in the near future, consider debt consolidation or refinancing. Consolidation means combining several loans into one. Refinancing allows you to take a lower-interest loan in order to repay the original. These are excellent options for businesses with strong credit.
You put a lot of blood, sweat and tears into your business. Don’t let it drown in a sea of debt. You have options. Make some strategic moves and get out from under. Your dreams depend on it.