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  • Writer's pictureVictoria Rizzuto

6 Steps to Eliminate Small Business Debt

We’ve all heard that ostriches bury their head in the sand when frightened or scared. This has been proven to be a myth, but we humans are still rather good at it. While not facing problems head on is a way of coping with uncomfortable situations, it most often makes matters worse. This is especially true when it comes to business debt. Most businesses incur some type of debt and use it in a healthy way as a strategic tool.

In business, there is something called “The Ostrich Effect.” This is when a business owner tries to avoid dealing with negative financial information. When business debt becomes untenable, it is best to avoid being an ostrich and face the problems head on.

Here are six tips to help small businesses eliminate their problem debt:

1. Take a good, hard look at your budget.

The first thing a business owner should do is to get a firm grip on their current financial situation. Once that is known, figure out where your money is going and whether it is the best use of your funds. If you need help with setting up a budget or interpreting your current cash flow, be sure to seek help from an accountant or bookkeeper.

2. Reduce expenses.

Once you’ve gotten a handle on your budget, find ways to reduce your expenses. Look at each budget item and determine if it is essential to operating your business. If not, cut it. Ask yourself the hard questions. Do I really need that subscription? Do I need to be a member of that organization? Am I spending money on advertising that isn’t yielding any results? Cutting costs is a prime way to increase your cashflow and reduce business debt..

3. Pay your bills with cash.

If you continue to pay your bills with a line of credit or business credit card, your debt will only continue to grow. By paying your bills with cash or check, as determined by your budget, you can avoid incurring new debt and will keep from expanding your existing debt. Use this method with caution, however, in case you want to restructure your debt, as you will need cash to look good to potential lenders.

4. Talk to your creditors and lenders.

There are several options available in this category. If you have business credit cards, explore the possibility of transferring balances to a lower interest card. If you have bank loans, talk to your banker to discuss options. Most likely, your bank loans have a lower interest than credit cards, so try to lower the higher interest debt first. Another option is to consolidate your loans into one single-payment loan with a longer term and predictable interest rate.

5. Create a “target debt” plan.

Make a list of your monthly debt payments and put them in order of the highest interest rate to the lowest. After making sure they are all covered, try to pay extra on the highest interest rate debt. By “targeting” debt in this manner, you will save money over the long run.

6. Increase your income.

Obviously, the more cash you can generate, the faster you can eliminate debt. This is easier said than done; but with some effort, it can be accomplished. Some ways to increase your income would be to raise prices (without jeopardizing sales), lower prices to generate sales, get what you’re owed by ramping up your efforts to collect your accounts receivable, upsell additional products by offering incentives or bundling products together, and/or optimize your inventory by selling off surplus and discounting items that aren’t selling.

According to USAToday, the average small business has about $195,000 in debt. Whether you’re going through a cycle where you have late-paying customers, or are facing unforeseen drop-offs in business as we’ve seen in this pandemic, don’t be an ostrich. Face the problem head-on and take steps to eliminate problem business debt.

Numbers by Victoria is a West Palm Beach bookkeeper who offers virtual bookkeeping services and other financial options for individuals and small businesses. Since our services can be performed virtually, we’re able to work with people all over the United States. To contact Numbers By Victoria, or to learn more about our bookkeeping services, please visit:


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