Steer clear of bankruptcy and toward solvency with these tips to help dig small businesses out of debt.
It’s not unusual for small, fledgling businesses to operate on a tight budget. When starting up, costs can spiral as you chase the business growth you need.
Throw late payment from suppliers, new hires, marketing costs and everything else into the mix and it’s no surprise some small businesses find themselves on the brink of, or immersed in, debt.
Here are five ways a small business can dig itself out of debt.
Related Article:Business Debt: How Much Is Too Much to Carry?
1. Seek Debt Advice
Not everyone who runs a company is a financial whizz. If facts and figures aren’t your strong suit and you feel you don’t have a proper grip on the money coming in and out of your business, then seek advice. This could be from a debt charity, a business mentor or an independent financial advisor.
Try and source impartial advice wherever possible that way, you won’t be dealing with someone who might try and nudge you into a certain product or service. They’ll look at your case objectively and advise accordingly.
2. Consider Loan Consolidation or a Debt Solution
It’s quite normal for businesses to have multiple business loans. However, this can cause confusion as they’ll probably each have different interest rates and it can be difficult to keep track of multiple forms of credit.
One option is loan consolidation, where to transfer all your debts into 1 single loan, ideally with a low rate of interest. This will streamline things, bring your debt down and give you greater clarity over your business borrowing.
Other options include protected trust deeds (for Scottish residents) and company voluntary arrangements for companies in the rest of the UK. For sole traders and the self-employed, trust deeds are also an option, as are individual voluntary arrangements, or IVAs.
3. Unnecessary Costs? Cut Them Out
Take a look at all your outgoing. And I do mean all. Not just the big outlays like office rent but everything from how much you spend on tea and coffee to internet costs. Costs could range from big things like:
- Business space you’re renting but not actually using
- Company away days or retreats
- Outsourced services like accounting
To smaller expenses like:
- Company mobile phones
- Fruit-and-veg deliveries
- Printer paper
Write down every single thing your business is paying for and cut out anything you don’t consider essential. Every little bit helps.
4. Reach Out to Your Customers and Suppliers
Staying connected with your customers and suppliers is important. A strong relationship means they might be willing to help you out in a time of need. You can do this by:
- Upselling: try and sell more products to your customers where you think they’d benefit. Increase your exposure through marketing and try and generate more leads. Turn them into sales and you’ll be improving your financial situation.
- Asking for discounts: if you’re really struggling, see if your suppliers will agree to some short-term discounts to help you out. Or maybe they’d be happy to defer payment for a few months until you’re back on your feet?
5. Lower Your Business Credit Card Rate
Business credit cards do have their uses. For one they allow you to borrow money you wouldn’t normally have access to. They also help in other ways, as many offer travel insurance and interest-free purchases. However, some business credit cards come with high-interest rates and, if you start to fall behind on your repayments, it could push you further and further into debt.
Most banks like to think of themselves as being pro-business, so why not speak to them to ask if they will lower the interest rate for you or give you a repayment holiday? Running a business isn’t easy. And most companies will, at some point along the way, run into financial difficulty. I hope these tips have come in handy. Good luck.