According to a study by Experian, the average small business has about $195,000 worth of debt. While debt can be a helpful way to launch a business, without proper maintenance and management, things can go sideways pretty quickly. This is why aspiring entrepreneurs need to be smart and strategic if they’re going to borrow to start a business.
If you run a small business and you’re starting to feel the weight of its debts, especially after the challenging past two years that we’ve had, here are some steps you can take to finally become debt-free this 2022.
Consult with a legal professional
Here are some signs you might need to consult with a reliable collections lawyer soon:
- Collectors or creditors are constantly calling your personal number, home, or workplace
- Your small business is currently unable to pay back the loans
- Creditors are already threatening a lawsuit
- You are being treated unfairly by the creditors’ collectors
- There is a general feeling that someone is following you to-and-from your store or place of work
Once you get in touch with an attorney, here is what you can expect from them:
- They will help you gain an insight into all your options
- A lawyer can help you negotiate with the collectors so you can come up with a payment scheme that is realistic and doable
- If filing for bankruptcy is an option, then they can help you do this in a way that serves your best interests
If you find that consulting with a legal professional seems like your only recourse, do not hesitate to do so. There are laws in place to help protect you, especially if you did nothing wrong and you simply mismanaged your small business’s debts.
Take a second and third look at your expenses and re-do your budget
If your small business has never had a budget, or if it always had one but it was never properly enforced, now is the time to take a second or third look, move some things around, and enforce that new budget or spending plan. Here are some steps you can take to begin this process:
- Review the last few months’ credit card and bank statements to gain an insight into where most of the small business’s money is going. Getting information on the year or so will help you create a new basic budget, since you will be up-to-the-minute on your sources of revenue, your monthly expenses, and you would also be able to identify trends.
- If you’re overwhelmed by the numbers, enlist the help of your bookkeeper if you have one, or use a budgeting app to help you keep track of the numbers more accurately.
Find ways to reduce your expenses
When you review your bank statements, you might find that the small business is burning through cash on unnecessary purchases, like expenses on autopilot. Categorize your expenses in three ways:
- Continue, which is an expense that is necessary and must continue to be paid for. One example of this is your payroll taxes.
- Negotiate, which might be a service or a product that is essential but you can do away with. Some examples of this include insurance, employee benefits, or a few suppliers or contractors.
- Eliminate, which is an expenditure that you know you need to get rid of as soon as possible. Some of these will be difficult, like letting go of a few employees, but it’s a necessary step if you want to be able to pay off your debts before the year is over.
Remember that these expenses might also not happen often, like technological subscriptions and annual memberships, so make sure to cancel these subscriptions as soon as you can.
Increase your revenue
Another essential step to paying off all your small business’s debts before the year ends is to find ways to increase its revenue. Here are some ways to do so:
- Be more rigorous in your marketing to find new customers.
- Advertise upgrades or value-adds to your current customers.
- Increase the prices of your products or services, but be cautious when doing this. Being too aggressive with this strategy can drive customers away.
- See if you can squeeze more value out of your current operational assets. One example is pushing for more output or better productivity from your current team members.
Getting out of debt is always a challenge, but there are resources available to help make the task easier. Don’t be afraid to ask for help, learn new strategies that you’ve never considered before, and believe in your and your team’s ability to find your way out of this tunnel.