Roughly 50% of small businesses fail within their first four years. While it may seem alarming, we’re going with the glass half full mentality around here. To us, that statistic means 50% of those businesses are successful. To take it a step further, we’re willing to bet that they’re successful because they’ve learned to manage and reduce their debt. While small business bankruptcy is on the decline, it’s important that all small business owners have a realistic and honest grasp of their debt. Here are five steps you can take to reduce your small business debt:
Step 1: Work with a bookkeeper to uncover your total debt.
Before jumping in head first, work with a bookkeeper to help you uncover your total debts. A bookkeeper will go through your records, complete a historical clean-up and develop a plan for moving forward. They can also help you manage your day-to-day transactions including payroll and invoicing. Having someone else on your team to help you manage your books is a great starting point when it comes to minimizing your debt.
Step 2: Become friends with the B word.
In other words, create a budget. While budgeting can be intimidating, the truth is, it isn’t. Most often, we tend to associate budgeting with restriction. However, shifting your mindset to think of a budget as the amount of money you have to spend, versus the amount of money that you can’t spend will do wonders for your accounts and your brand. Seek professional advice and get on track for saving and spending. In addition to bringing on a bookkeeper, consider accounting software that aligns with your budget. Use one of our favorites, or use one of your own. Either way, think of your accounting software as an invaluable part of your team.
Step 3: Reduce, reduce, and above all, reduce.
Once you’ve got your bookkeeping and budget in order, take a long, hard look at your costs. Determine what is necessary for daily operations and what you can let go of. Rent, utilities, internet and other necessities can’t be touched, but if you’re considering a trip to a trade conference, maybe save it for later in the year. Dive deep into your other expenses and pay attention to anything that screams (or even just hints at) “cut me out!”
Step 4: Consolidate small business debt.
29% of small business owners say that they’ve applied for a loan, and 90% of those have gotten approved. If you’re one of the 29%, consolidating your loans is one of the fastest ways to pay down your debt and lower your interest rates. You can reduce your monthly costs without taking a hit to your credit. Instead of paying various interest rates, you’re left with one rate on one loan and one payment. Even though the loan number appears larger, you might be able to save more money in the long run. Speak with your CPA to see if consolidation is the right move for your business.
Step 5: Up your income.
Upping your income can be a huge player in your debt-reducing game. Consider running a sale on your products to encourage buyers to make a purchase and increase volume to your website. While a sale might seem counterintuitive, the goal is to increase customers and therefore, revenue. If your new budget allows, advertise and increase marketing to encourage sales. Offer loyalty breaks for returning clients and follow-up with leads you’ve been meaning to get back with. Essentially, find your hustle. Get the tips and tools you need to find your hustle in our free ebook that will help you grow your startup into a tech empire.