Acquiring debts is one of the downsides of running a business especially is said business is a SME. While running a business especially small and medium scale enterprises, there may be limited or the total absence of funds that should be used in business operations as a result In these cases there is a need for alternative sources of funding for such businesses.
This alternative funding thus often times turn into debts for the business especially if the business is unable to settle them immediately. The lack of funds, poor credit management as well as the personal use of business funds are a few reasons why businesses especially SMEs fail. Without enough money to cover the cost of running the business and other expenses that may arise, businesses can quickly become bankrupt or spiral into delinquency.
As a result, in order to ensure the continuous existence of your business, it is important that you know how to effectively manage your credits and debts. As a business owner, it is necessary that you not just know, but also understand and effectively utilize the various options available for repaying business debt.
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How To Lower Your Business Debts
There are several options to help you with managing and lowering your business debts before they eventually spiral out of control. These options include:
● Reworking Your Business Budget
Many business owners often times do not realize that their business budget is exactly what causes them to continuously seek alternative funding. As a result, before going on to prepare a business budget; it is essential that you have a good understanding of your business’ current financial situation. This way you are able to effectively plan your budget with just enough to cater for your business.
Hence, before settling your business debts, you also need an understanding of your business’ financial standing. A business budget would provide you with this understanding by identifying your business income sources, fixed costs and other expenses. It would also help you effectively plan how to properly settle your debts by setting monthly amounts aside for debt settlements.
Professional advice would also help you to know how to effectively plan your business’ budget. Reworking your budget is one of the most effective ways to properly lower your business as you can develop a repayment plan that would help you manage your debts.
● Reduce Your Business Expenses
Another way to reduce your business debt is to reduce your expenses; this can be done by looking at your operating costs. You need to figure out the necessary expenses that your business needs for its daily operation versus those other expenses which are unnecessary which you can reduce or totally eliminate.
These other expenses could include; magazine subscriptions, internet subscriptions and transport expenses. While you might not need to totally eliminate these expenses, you can however reduce them by finding much cheaper options. You could choose to move from a larger office space which might be to a much smaller one that would still house your business. You could also negotiate reduced prices and rates with vendors.
Thus, with a detailed budget, you would be able to effectively know how to reduce these expenses and have enough to pay off your debts.
● Increase Sales
Another way to lower debts is to increase sales which would in turn boost profits and revenue. As such, you should begin to seek new ways to increase your customer base and sales that would therefore lead to more income for your business which could be used in paying off old debts and also running the business. This way, there would be no need for alternative funding for your business, which in turn means lower debts.
You could also offer lower rates on merchandise and discounts on services offered to loyal customers. You could also offer discounts for cash payment made upfront to your customers. This will serve as an incentive to your customers, thus encouraging them to make full payments faster.
● Prioritize Your Payments
In order to reduce your debts, you should prioritize your payments. Rather than trying to pay them off all at once, it is much wiser to focus on paying them one at a time. To do this, it is much better to pay off debt with higher interest first over those with lower interest rates to prevent these debts from increasing even more.
Prioritizing debt payments helps you determine which suppliers and creditors must be paid first. You should also negotiate on agreeable payment terms with these creditors and seek other loan consolidation programs such as invoice finance. These loan consolidations would often allow you pay up all monthly loans as a single monthly.
You could also try to find out whether or not you qualify for hardship plans that would allow for lower interest rates and payment extension. Effective communication with your creditors and lenders would also allow you seek extensions, provided you keep them updated on your business account situation.
And finally,
● Work With Debt-restructuring Firm
If other efforts to repay or lower your business debts have failed, then the next course of action would be to enlist the services of a professional debt-restructuring firm. These debt-restructuring firms help business with negotiating with creditors and other collection agencies. They do these on behalf of these businesses and seek to extend, renew or change already existing credit arrangements.
All you need to do in this instance is merely to enter into a written contract with these debt-restructuring firms and also make arrangements that would allow for automatic withdrawals from your account to settle existing debts.
Debts are often incurred in the management of any business, these debts often times could eventually run any business down. As such, as a business owner, it is necessary that you effectively understand how to manage and lower your business debts. There are loan repayment options available that would help you in effectively managing your business debts while not adding to the already existing costs.