The US SBA cites the use of business funds for personal needs and poor credit management as the top reason why businesses fail. If you lack the funds to cover basic expenses such as payroll, things will soon start going bad for you. To ensure that your business stays financially healthy, you need to know how to pay down your business loans effectively.
From getting rid of unnecessary costs to restructuring your debts through a 3rd party, devising a payback plan and being hands-on will allow you to repay your bills before they become too much. Here are some tips that will help you:
Reworking your business budget
Before you attack your debt, you should get a handle on your financial situation first. Are you lagging behind on monthly payments? You should revisit your budget and make adjustments for unexpected cash flow changes.
Having a business budget allows you to identify your variable expenses, income sources, and fixed costs. When you budget, you get into the habit of setting aside monthly amounts to pay creditors, landlords, and suppliers. If you would like some help coming up with a budget, you can hire a professional accountant to show you the way forward.
Reduce business expenses
Look at your operating costs to find out which expenses you can cut out of your business. For instance, do you pay for things that you use infrequently? You can use accounting software to find out the financial impact that cutting some costs will have on your business.
The fastest way of increasing your cash flow would be to cut all your unnecessary expenses. Are you leasing an office? You should think about downgrading to a smaller space or subletting any unused areas. Your financial statements will come in handy when pinpointing the expenses that contribute to your debt.
Increase customer sales
In addition to reducing costs, you should look for other ways to boost your revenue by increasing customer sales. You can do this by offering markdowns on goods and giving discounts on services. You can also ramp up your account receivables by watching late customer payments closely.
For instance, if you give your clients a discount when they pay fees upfront, you will improve your cash flow.
Communicate with lenders and creditors
If you fall behind on payments, you need to prioritize debt repayment to find out which lenders must be paid first. Use your cash flow statement to figure out your missed payments and delinquent accounts. Once you come up with a figure that you can allocate to outstanding debts, you should get in touch with creditors to come up with agreeable payment terms. Ask your lenders whether they have any loan consolidation programs, which can combine your monthly payments into one single payment.
Work with debt-restructuring firms
You need to hire a debt-restructuring firm if all your efforts have proven futile. A professional in this field will negotiate with your creditors to extend, change, or renew your existing agreements. This process usually involves a written contract between the debt-restructuring company and you plus an automatic withdrawals setup used to pay your outstanding debt.
Although you have to pay for their services, hiring a debt-restructuring firm is cheaper than filing for bankruptcy.
Do you have personal debts that are affecting your business? You need to get your personal affairs in order if you want to eliminate all your business debt. This means that you should look into student loan consolidation and payment reduction program companies. When you deal with your personal debt, you will be in a better state of mind to handle business debt.