Businesses can accumulate plenty of debt, especially when first starting. When the pandemic swept the United States, more businesses went into debt, or the amount of debt they had initially increased. With over 160,000 estimated small businesses in the state of Idaho, it’s safe to say that a majority have some debt they are currently working to pay off. Roughly ¾ of all businesses in the United States accumulated more debt to survive the pandemic.
While accumulating business debt came so easily to many businesses, the bigger concern was the ability and length of time to pay off debt. Following some simple strategies thoroughly could open the opportunity to not only pay back the debt but also increase the possibility of paying it off sooner.
Identifying the problems
If your business wants to pay back debt, the first step is fully understanding the financial issues at hand. Get very familiar with the amount of money coming into your business and out. Have a daily, weekly, and monthly average for money earned and money spent.
Take a closer look at expenses. What costs are necessary? Save some cash flow by eliminating unnecessary expenses you may not know are adding up. Of course, costs such as rent and electricity are mandatory expenses. However, large coffee budgets and expensive decor can wait or anything else not directly affecting your business’s success. What you spend could be prolonging the ability to pay off debt.
If your business employs people that help make up the 315,000+ small business employees in Idaho, then consider who all has access to business finances. Should anyone else have access, determine if they make sound decisions when it comes to earning and spending the business’s money.
Your business’s creditors are the main source of debt. The last thing you’ll want is interest rates that have exceeded ROIs. Re-negotiating terms with any supplier, manufacturer, or vendor your business has can have its benefits such as lower interest rates, better payment terms (i.e.: net 30), and even a lower balance.
Check to see if your business qualifies for any loan forgiveness. Businesses that received funding through business loans during the pandemic are likely to have some partial amount forgiven.
Over 7500 Idaho businesses received over $1.15 billion in funding under the CARES Act, reported by the Small Business Administration. Many more are said to have been funded during the pandemic in Idaho. Therefore, contacting lenders about loan forgiveness is a must.
Sometimes ownership of anything can have other costs that aren’t initially considered. It may make sense for businesses to rent what can be leased to them as opposed to owning. If a business has substantial debt but has ownership of different assets such as property or equipment, they could sell those assets. The funds from the sold assets can be used to rent the type of assets sold and used to make extra payments on business debt. A good place to start would be writing down what your business needs are that can be classified as a rental expense.
Increase the cash flow
Eliminating debt becomes a much faster process if a business receives higher revenue. Explore the ways to increase cash flow without accumulating more substantial debt at the initial investment.
Marketing strategies coincide with today’s trends and human psychology. Implement new strategies for better reach and engagement. Introduce a new product or service to your business’s audience. It should be one that doesn’t have too many upfront costs as that would only cause more of a financial strain.
A new income stream within a business could be a big help in increasing overall cash flow. Most small businesses in Idaho happen to be service businesses. For example, if a business offers graphic design services, then adding a course or eBook on graphic design could create another income stream.
Detailed budgeting and expense tracking
Identifying financial problems is one thing, but consistent tracking afterward is another. The best way to keep track of budgets and expenses is to have a master spreadsheet as a tracker. Every expense should be accounted for, no matter how big or small.
While determining budgets for the business, it is important to include everything you might have to spend in addition to everything you know you’ll have to spend. Budgets should include not only debt payments and obvious monthly expenses but also emergency savings.
Implement as many strategies as possible
Business debt can be paid off much faster if all mentioned steps are taken to manage finances. Focus on one step at a time unless you have adequate partners. Investing in a financial advisor and accountant could be efficient in ensuring financial management is carried out correctly.
Consider the way the debt will be paid off also. Some people and businesses use the snowball strategy to pay off debt. Start with the smallest debt amount or creditor and work your way towards your largest creditor or debt amount.
Another way to pay off business debt is to pay them in order of their interest rate from largest to smallest. Start with specific credit cards for particular brands and stores as they are likely to have the highest rate. Business loans or mortgage payments on a business property may have lower interest rates as the amount owed is typically higher.
— Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. He graduated from the University of the Pacific’s McGeorge School of Law and now serves as a principal attorney for the Oak View Law Group.