4 Strategies to Reduce Your Small Business’s Debt
Business debt can pile on fast if you are not vigilant. It is easy to assume that money invested into the business will assist in revenue growth. However, some expenses don’t work out as you may have planned. Perhaps you have accumulated more debt than the business can handle. It is vital to tackle these financial issues sooner than later as they can become detrimental and prove fatal to your business. If your business’s finances have gotten out of hand, Arete Partners can guide you in understanding your financial past, present, and future. Meanwhile, the following strategies can be a good start to reducing your business’s debt.
1. Re-evaluate your business budget
Some entrepreneurs are more inclined to handle the day-to-day aspects of the business than they are in handling their business’s finances. For these entrepreneurs, it is easy to put the business’s finances on the backburner. However, it is crucial to re-evaluate the business’s budget from time to time so that the business’s finances don’t get out of control. As you experience growth, money may be better spent in areas where you did not traditionally spend. Changing circumstances call for changing solutions. So, re-evaluate your business budget every now and then before spending gets out of control.
2. Use industry-based approaches to managing your debt
The type of industry in which your small business engages can give you an idea of how you should be spending. It could be easier to keep your debt reduced if you are a services-based business compared to a goods-based business. Businesses in the service industry typically have the cost of labor to front. In contrast, goods-based businesses typically bear the cost of inventory purchases before making money on the product.
If your business does have a large up-front cost on consumables, for example, it is important to be mindful of the order size that you place compared to how much your sales can support. For services-based businesses, be mindful of your business size relative to your revenue. If you spend more on labor than you receive in revenue, consider downsizing to fit the number of services that you provide. A healthy level of business debt may vary based on your industry. Determine what level is healthy for your business and adjust accordingly.
3. Contact your existing lenders to restructure or renegotiate the terms of your loans
This option may initially seem like an uphill battle. However, lenders are businesses too. They may be more willing to work with you than you initially believe. Working with you to manage your debt is in their interest as it allows the lender to continue to receive reduced payments rather than pursue debt collection if you can’t make payments at all. You can use a hardship letter to explain to your lender the circumstances of your hardship so they get a good picture of what you can and cannot pay at the time. A hardship letter can influence your lender to, inter alia, waive overdraft or late fees, adjust your interest rate, or suspend past due amounts.
4. Seek grants to finance growth
Who doesn’t like free money? Especially when you can use that money to grow your business in hopes of ultimately earning more revenue for your small business. The Covid-19 pandemic and ensuing government regulations have created severe burdens on small businesses. Luckily, there are numerous Covid-19 relief options for small businesses. Arete Partners has assisted clients in various industries in navigating their financial options post-pandemic.
Additionally, large corporations occasionally provide grants to small businesses as part of their philanthropic activities. For example, FedEx conducts the Small Business Grant Contest which awards $20,000 to seven small businesses and $50,000 to three small businesses. Specialty grants also exist for small businesses owned by women, veterans, and minorities. Take some time to conduct research on grants before considering a loan.
Conclusion
Finances are an often-mundane aspect of your small business. Yet, having a clear picture of your small business’s finances can mean the difference between opening a new location or closing shop altogether. If flowers, food, or fun is your expertise, let your finances be ours. Arete Partners can completely manage your finances through virtual or outsourced accounting. Alternatively, let us provide business consulting and coaching for the entrepreneur who (mostly) has things under control.
