Most businesses need to borrow funds at some point. Whether it is to get off the ground as a startup or later on when the business is in growth mode. However, before you borrow any funds you need to know that you have the ability to pay it back. Borrowing funds should be seen as a short term solution to lack of money, however the money should be used to generate a strong return. This should allow you to pay back the money and then have more money to continue to self fund as you move forward. Without a repayment plan debt can grow into a problem that is unmanageable, and this can put your business at risk.
Here are our 5 tactics to paying down business debt faster:
1. Set your goals
You firstly need to know exactly what you owe so you can make a plan to pay it off. If you have more than one debt then you will need to decide how soon you’d like to be debt free. Realistically how long will it take, 6 months, a year, maybe two?
Once you have set a date that you can have the debt paid off by then you will need to work out how much you need to pay each month in order to meet your deadline. Is this realistic? Can you commit to being able to pay this every month?
Related: Is keeping it Simple Smart when setting Business Goals?
2. Create a snowball effect
If you have more than one debt it can get confusing (and a little overwhelming). This tactic looks at paying minimum payments on all debts each month. But then to really help you create a snowball effect and pay the debt off faster we suggest you then choose the smallest debt and pay as much as you can towards that one. Once you have paid off the one with the smallest debt, move onto the next one until each is paid in full.
3. Focus on earning income
Sometimes paying off debt is about creating extra income. You can’t pay money if you don’t have it right? So look at your current business offering and see whether there is a way of adding extra income. Is there a product or service you can add? Can you offer a discount to a product or bundle some products together that might create more sales. That extra income can then be directed to paying off your debt faster.
4. A dollar saved is a dollar earned
Ok so that might be an old adage from your grandmother but it has some truth. If you can go through your expenses and trim the fat you will have extra cash. Can you become more lean in your spending? What if you could shave off 10% of your expenses and then redirect that money into paying off your debt?
Related: How to ensure your Variable Expenses don't drown your Business
5. Negotiate with your creditors
If you have funds owed from institutions like banks you can negotiate your rates. Sometimes just by asking you can score a lower interest rate or consolidate some debts. This can make a big difference to the amount owed and allow you to pay it back quicker.
At Azure Group we understand that managing the finance of a business can be challenging. Cashflow is one of the biggest issues for small business. Talk to us about how we can help you with cashflow management.
Related: Cashflow is king for Business success