Being an entrepreneur of a small business, you are aware that at times you need to borrow money from your suppliers and financial institutions for a variety of reasons. After all, you need to purchase necessary equipment, meet day-to-day operating expenses, pay your employees and improve your organization’s cash flow position. At the same time, you have to look for ways to tap into lucrative markets to sell your products or services to the public at attractive prices. However, incurring too much debt than you can manage may eventually do more harm to your business than good. In the worst-case scenario, you may have no option but to file for bankruptcy. This can act as a catalyst in ruining your reputation in the market.
The financial specialists from the U.S. Small Business Administration (SBA) explain that there are specific reasons why entrepreneurs of small businesses go bankrupt. In a vast majority of cases, these business owners do not have adequate credit management skills and enough money to carry out the day-to-day operations of their businesses. They also tend to take out money from their companies to meet their expenses. These experts go on to say it is essential for all business proprietors to know how they can effectively reduce their business debts by more than 50%. They further state that these business proprietors should keep in mind the following useful tips to help them achieve this objective:
1 Evaluate your organization’s budget
Before you even think of tackling the problem of business debt, you need to have a thorough understanding of your present financial situation. If you have a habit of failing to meet the deadlines of your monthly business payments, you need to have a good look at your organization’s financial plan. Evaluate it and see where you need to make necessary changes to improve your establishment’s cash flow position.
2 Minimize the operating expenses of your organization
Next, you have to analyze the operating expenses of your business thoroughly. As an entrepreneur, you need to look at ways to reduce your unnecessary business costs. This will help you to operate your organization efficiently without having to compromise on the quality of product or services you offer to sell to the public. In some areas of your business, you may be spending too much money that is not resulting in a corresponding increase in revenue. Your organization’s financial statements can help you to identify the places where you need to tighten your belt.
3 Generate more sales revenues
Cutting costs is not the only thing you need to do to reduce your business debts. You need to look for ways to enhance your business sales. Offering attractive discounts to customers who make bulk purchases of your products is the only way of boosting your sales revenues. You could also distribute special gifts to your regular clients to encourage them to buy what you are offering to sell them and ensure their loyalty to your organization.
4 Analyze your organization’s accounts receivable position
It is essential for you to analyze your organization’s accounts receivable position. Is the period you are allowing your customers to repay their dues adequate to ensure the efficient running of your organization? If, the answer is ‘no,’ then you need to take steps to reduce it to help your establishment get out of debt. One way of achieving this goal is by allowing them attractive discounts for their prompt payments. Again, you need to conduct a thorough follow up on customers who tend to make late payments. You could go to the extent of imposing fines on them to discourage them from doing so. Such steps go a long way in enhancing your organization’s cash flow position.
5 Communicate with your suppliers
In addition to evaluating your organization’s account receivable position, you should start negotiating with your suppliers. Tell them your establishment’s financial position and ask them if they are willing to offer you better payment terms for the purchases you make from their organizations. If you owe them money, inform them that you are willing to make bulk payment if they waive a certain portion of your debt. This put them in a better position than having to write off your entire debt as irrecoverable.
6 Consider loan consolidation
You could consider the option of converting all your miscellaneous business loans into one single debt. This means that you just have to make one lump-sum repayment every month to clear this monetary obligation. This can go a long way in helping you reduce your business expenses.
7 Sell obsolete business assets
If your establishment has certain fixed assets that are not yielding adequate revenue, you could think about selling them off at the right price to repay your business debts. Even after such a repayment, you may have some cash left to operate your business.
8 Take advantage of ‘Statute of Limitations’ law
You may notice that your business organization has certain debts which you have repaid for several years. In such a case, it is necessary to the creditors of these loans to send you important reminders during this period or filed suit against you in a court of law. If they fail to do this, you can claim such debts to be time-barred under the ‘Statute of Limitations’ law.
9 Seek the help of a financial expert
Hiring a skilled financial expert to help you to repay your business debts in one of the best options you can avail. Such a professional can study your situation and come up with an effective plan to help you achieve this goal.
10 Using your life insurance
You could think of using your life insurance to pay off the debts of your business organization. However, most financial experts say you should consider this as the last option as you previously have set aside this money for your future.
Experts say that bankruptcy can seriously affect your credit ratings and reputation as an entrepreneur. This is the reason why you should always make ensure your business debts are within manageable levels. However, if the situation does go out of hand, the previous ten tips can help you save your business from financial ruin.
Guest Writer: Kelly Wilson is an experienced and skilled Business Consultant and Financial advisor in the USA. She helps clients both personal and professional in long-term wealth building plans.During her spare time, she loves to write on Business, Finance, Marketing, Social Media.She loves to share her knowledge and Experts tips with her readers.