Debt can be a crippling problem for small businesses wanting to grow or just break-even during difficult times. By reducing debt you’ll improve the value of your business, its financial situation, and its ability to continue operating into the future. So here are 5 things that may help you pay down debt.
Get clarity on your debt situation
Take a detailed look at all of your debts – both current and long term. Evaluate which ones are more urgent and which can be parked until some progress is made.
First, list your debts from smallest to largest. Maybe some of those smaller debts can be paid off quickly without much hassle to enable you to focus on the larger ones.
Traffic light the debts by priority. By this we mean colour code them red, amber or green in how urgent they need to be paid. If you are making payments per schedule then they are a green. If you are behind on payments and getting demand letters, these are a red.
Then pay down debt from smallest debt to largest taking into account any priority debts that need to be attended to first.
Cut costs and free up cash
Try to cut any unnecessary costs and free up some cash in the process. Think about how much you spend on each of your daily expenses – is there room to cut some of those costs?
For example, a building firm may shout takeaway coffees for its workers a few times a week. Maybe a cheaper way can be found to continue providing coffee, such as instant coffee on site with hot water from a thermos, rather than expensive takeaways.
Simple expense reviews can go a long way in identifying alternative funds that could help pay down debt.
Have a look at how you’re using funds to pay off your business’s debt. Do you have funds available that could be better used to reduce debt further? Perhaps you have money in a current account that isn’t being used optimally – lowering debt and hence future payable interest could be a wiser choice.
Examine your cash cycle, when payments come in and when they go out to pay your creditors. Where does the incoming cash go before it gets allocated? Is there any you can reassign to debt payments?
Sell your assets
Another option for freeing up funds to reduce your business’s debt might be to sell some assets. What do you have money tied up in, but don’t use often enough to justify?
Any equipment that’s not being used could be sold off. One example could be a builder who has an oversupply of power tools – making a detailed list of all their tools and how frequently they’re used might reveal some surplus assets.
Remember, the only way to pay down debt is to run a profitable business. And not only one that is profitable, but one that creates free cashflow.
If you need help in creating a plan to pay down debt or creating a profitable business, book a Biz Fit call today and we’ll get you started..