Many business owners who have started their first business panic when they get into debt. Nevertheless, debt can be a tool that can help you grow your company. Of course, provided that you know how to manage it. If you fail to understand your situation and take action, it can become a big problem that will negatively affect your business’s performance.
Have a look at what you should do if you are facing business debt.
- Make a new business budget
If you realise that you are in debt, you have to reduce your spendings immediately to prevent the debt from growing. You have to have a look at your finances and find areas where you can cut costs and save money. Once you do that, the new savings might provide you with resources to pay off your debt.
- Choose a debt-reduction strategy
There are two common debt reduction strategies:
| The spartan strategy | The percentage strategy |
| Requires creating an essentials-only plan and reducing your overall spending. If you choose this strategy, you have to decide what you won’t spend money on until you have paid off the debt. | Requires dedicating a certain percentage of your monthly profit to paying off debt. This way you can gradually get rid of the debt. |
- Define a timeline
Before you start paying your debt off, you should calculate how much time you need to do it. If you set a timeline, you will have a repayment plan and managing your debt will be easier. Having a planned date when you will be debt-free, as well as some smaller repayment goals will help you stay motivated.
- Try negotiating the terms of your loans
If you are struggling to pay back your loans, you should reach out to the lender and explain what your situation is. They might be able to help you by restructuring your payments, giving you more flexibility, or even changing your interest rate.
- Automate your debt payments
To make sure you never forget to make a payment and that you are not tempted to keep the money in your account, set up a direct debit. This way you won’t have to constantly think about repaying the debt and you will be able to focus on other aspects of running your business and bringing it back on track.
Debts are very common, especially if your business is new, so if you do happen to acquire one, do not stress. Follow these few simple steps and you will be able to manage your business’s debt effectively and repay it in next to no time.
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