According to the Small Business Administration (SBA), almost 50% of small businesses go under their first five years of operation. And this is because of the reason that small business owners take an excessive amount of debt.
Even though it is not possible to start a business and experience the primary growing pains without some debt, the National Small Business Association (NSBA) suggested in 2013 that the average debt of small businesses was over $835,000. if you find your business sinking under the weight of ever-increasing debt and don’t know how to fix it without sacrificing the company, it’s time to take a step back and consider your alternative options.
Managing Small Business Debt
Primarily, you need to determine your debt-to-equity ratio, a figure revealing how much cash you owe compared to how much amount you’ve. The ideal ratio varies by industry, but the figure is under 2.5 for most.
In order to improve the ratio, you need to look out for ways to cut the costs. You can sell equipment you don’t use, liquidate more inventory, or also you can eliminate unnecessary services. Get in touch with your suppliers to see if they are eager to present you more time to pay outstanding invoices.
Increase your visibility by reconnecting with your customers can also help you to bring in more business. Put more effort into your online presence or build a core group of brand ambassadors to increase interest by word-of-mouth advertising.
Small Business Debt Management Options
When handling large amounts of debt and more than one payments, you need to prioritize. Determine which debts must be paid off first and which can wait. Speak to your lender and explain what is happening, and ask what he could do to reduce the burden. They will be able to increase payment terms or change other requirements to make it less complicated for you to pay down the debt.
Debt consolidation is another renowned option. By taking your outstanding payments and creating a plan to cover all of them with a single monthly obligation, you can save cash and prevent your business from being astounded by excess debt.
Taking some proactive measures such as a small business loan to manage the debt can get you out of the hole and back on the way of success. Rather than becoming just another figure, your business can confront the odds and prosper in the long run.
Tips To Keep From Drowning In Debt
Once you have established that you are at risk for your debt being too high to manage, the question is how to get out from it.
Here are the four ways to help you to overcome your debt:
1. Cut Costs
Most importantly, discuss all of your business expenses and determine what’s important for your business functioning. If it isn’t important, eliminate it. In case you have an annual business breakfast, cancel it, or scale it back affectedly. Check your business-specific contracts and subscriptions, and try to negotiate for better deals. You can also cancel or freeze them.
2. Find New Business
In case you can increase the funds you take in, you will have the plus of closing the gap between the funds that you have and the funds you actually require. You need to contact your customer base regarding increasing their use of your services and to grow your networking possibilities in order to bring in new customers.
3. Negotiate On Terms
Frankly speaking, your bank is not your most effective source of funding. Each supplier and provider who bills you has the potential to be your debtor. Eliminate any hesitations they may have about you through contacting and inform them of your current financial problems. You may be able to negotiate a partial-payment plan that will lower your monthly load enough to help you manage your expenses.
4. Consolidate Your Loans
AS with any small business loan that threatens to engulf, debt consolidation can be the way by which you manage your debt, and minimize the fees related to it. That is, work with your bank to combine all debts into one, with only one payment due date, with a fixed amount that you can afford. By paying back the whole lot on a set schedule at an affordable rate, you increase the amount of time you remain in debt to the bank; however, you’ve established a way of defeating your debt load.