5 Strategies to Help Manage Small Business Debt

Knowing how to manage debt is part of everyday life for many small businesses. There’s nothing wrong with small business debt if you’re borrowing to improve your business’s future profitability. Small business owners might choose to borrow money to invest in new product development, expand into new markets, or handle ongoing costs of doing business.  

Unfortunately, if your small business is encountering tough times like a drop in revenue, an industry-wide slowdown, or a recession, finding the right way to manage debt can be more difficult. But even during cash flow shortfalls, you can take action to manage debt for your small business. 

Let’s dive deeper into five strategies to manage debt for your small business.

1. Create a budget

Whether you’re comfortably paying your bills or if you’re considering getting help like debt relief, it’s important to create a budget. Setting a budget for your small business can help you identify exactly how much debt you owe and how much cash you have to pay it off each month. To create a budget, follow these steps.

• Add up your revenue: List all your revenue sources and add them up to figure out how much revenue you generate on a monthly basis. If your revenue varies, try to figure out what the average is.

• Subtract your fixed costs: Your business’s fixed costs are the same from month to month, and may include expenses like rent, supplies, payroll, taxes, and insurance. Tally them up and subtract them from your revenue.

• Subtract variable expenses: Variable costs are expenses that change over time. These could include office supplies, utilities, advertising and marketing, or any unexpected one-time business expenses. Once you come up with an average monthly variable cost, subtract that number from your revenue as well.

• Determine how much you can allocate toward debt: The number you get after you subtract your fixed and variable costs from your revenue will give you an idea of what you can put toward debt each month. 

There’s no one right answer for how much money to put toward small business debt each month. But understanding the full picture of your small business’s monthly cash flow, expenses, and overall budget will help you make better informed choices on how to manage debt. 

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2. Reduce costs

The less money your business spends, the more cash you’ll have available to help manage debt. So it’s a good idea to take a close look at your business expenses and figure out which ones you can reduce or completely eliminate. Here are some suggestions.

Reduce rent payments

Right-sizing your office space or other business facilities can be an easy way to save money. If your office space is too big or you could get by with a  smaller space, consider moving to somewhere with more affordable rent payments.

Negotiate with suppliers

Don’t be afraid to reach out to suppliers and negotiate better deals. If you have a track record of making timely payments or buying in bulk, suppliers might give you a discount or offer more favorable payment terms that can improve your cash flow. 

Clear out unneeded equipment and subscription costs

Many small businesses, without realizing it, end up paying for a few extra subscriptions, software licenses, or pieces of business equipment. As part of your cost-cutting efforts, take a fresh look at how much you’re spending each month on these ongoing costs. And look for opportunities to sell extra business equipment or other unused assets. 

Outsource non-core functions

Another big part of cost-cutting for small businesses is re-evaluating how much you spend on certain business functions and skill sets that might not be core to your operations or essential to your success. For example, do you need a full-time marketing department at your company, or could you get the same results by hiring contractors? 

Bring some functions in-house

Outsourcing is not always the answer. Sometimes, small businesses can save money by doing the opposite, and making some roles internal full-time jobs. For example, some companies might find that they’re spending a lot of money on paying commissions to recruitment firms. Hiring a full-time talent acquisition manager to work in-house at your company might save you money.  

Share with other small businesses in the area

Other small businesses in your industry or local area might be looking for cost-saving ideas. Reach out to other small business owners in your network, or via business associations, and look for opportunities to share office space, band together for purchasing supplies, or work as a team for other cost-saving strategies. 

Get up to date with marketing and communications practices

You can easily spend less by swapping billboards and print ads for targeted, cost-effective digital marketing solutions. If your business is still using landlines for phone service, this could also be an easy target for cost cutting. Take a fresh look at your business’s everyday communications tools and marketing efforts, and think about how you can change them to cut costs.

Ensure employee efficiency

Increasing the productivity of your team can drastically lower your cost of doing business. To make sure your employees are productive and efficient, use software to track the way they spend their time. You can also set deadlines and schedule predetermined time blocks for meetings. 

Reach out to your employees for ideas for how they can do their jobs better. Trying to remove obstacles and rework your company’s processes to reduce inefficiencies can make everyone’s life at work easier. 

3. Increase revenue

Think about ways you can increase your short-term revenue. Boosting your top line revenue can help you manage debt by increasing your debt payments, and it’s helpful in the long run by shifting your business in a better direction. A few revenue generating strategies might include the following. 

Offering a special sale

Get creative about giving customers a new, timely reason to buy from you. Can you offer a seasonal sale or a holiday special? Can you give your customers a discount if they buy before the end of the month or the current quarter? Think about how to accelerate revenue by getting people to buy sooner. 

Up-selling or cross-selling

Look for opportunities to sell more products and services to the same customers. How can you create a package of products or services that can meet multiple needs for the same buyer? Encourage more customers to upgrade their purchases with premium offerings. Or get people to buy multiple categories of products or services at the same time.  

Offering special deals for high-value customers

Who are your biggest and best customers, and how can you get them to spend more money with your business? Sometimes when you need to boost sales and increase cash flow, it pays to go deeper into your best customer relationships. Offer a discount if a customer increases their purchase volume, or see if you can cross-sell a new product to an existing customer who loves one of your other products. 

Offering incentives like free shipping or complimentary consultations

Customers love to get value-added services and bonus incentives. Think creatively about how you can make your offerings more attractive by throwing in some fun, valuable incentives. 

Launching a customer loyalty program

Try to drive more repeat business by giving your customers an incentive to keep buying from you. This could be as simple as a “buy 10 lunches, get one free” coupon at your restaurant, or a more sophisticated loyalty program where you give customers a discount or offer value-adding incentives based on total purchase volume per year. But whatever model is right for you, think creatively about how your business can drive more sales by incentivizing your inner circle of loyal customers.  

Create a customer referral bonus

One of the best ways to find new customers is by asking for referrals from your existing customers. Some of the best sales opportunities come from word of mouth. Offering a customer referral bonus can accelerate that word of mouth. Be innovative and generous; what’s it worth to your business if one of your best customers spreads the word and gives you five or 10 new sales opportunities? 

You could also combine your customer referral bonuses with other customer loyalty programs and incentive offerings. Make it worth your customers’ time, and they’ll be more likely to give you referrals. 

It’s not always easy to increase revenue quickly, but with some planning and creativity, you could set yourself up for longer-term growth.

4. Reach out to creditors and lenders

If you are having trouble making the payments on your small business debts, especially if you’re a sole proprietor who has paid for business expenses on personal credit cards, you might want to consider credit card debt relief. But before you get to the point of falling behind on your bills or considering a debt settlement program, there are other options. 

Don’t be afraid to contact creditors and lenders to explore the options they have available. Ask them if you can lock in a lower interest rate or transfer your existing balances to a 0% interest credit card. If you have multiple debts from different lenders, debt consolidation may be a good move. It can allow you to combine all your debts into a single, manageable payment with a lower, predictable interest rate.

Your creditors and lenders may also offer credit card forbearance or other hardship programs that can give you a reduced interest rate or extension on your payment deadlines. In some cases, hardship plans require that you write a letter that outlines your financial situation and shows why you need assistance with your debt.

5. Get customers to pay sooner

Another good strategy to improve your business cash flow is to get paid by your customers faster. The longer your payment terms are, the longer it’ll take for you to get paid and reduce your debt. So your goal should be to motivate customers to pay sooner. If your business accepts long-term payment plans or late payments, you may want to modify your payment terms. 

For example, inform your customers that your payment terms are changing to net 30 days instead of net 90 days. You can also offer early payment discounts or charge late payment penalties.

Even if your small business is experiencing slower sales or rising costs, you still have control over how to manage debt. By following these five tips, you can stay on top of your small business finances and put your company on a stronger footing for future success.

Need more help to manage debt for your small business debt?

In case you’ve had to put business expenses on your personal credit cards and are having trouble paying them off, Freedom Debt Relief could help you understand your options for dealing with credit card debt, including our debt settlement program. Our Certified Debt Consultants could help you find a path to a better financial future. Request a free consultation now.