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Small business debt is much more common than you might think, and in many cases, it isn’t something to worry about too much. Like anything, there is always a solution, but the worst thing you can do is bury your head in the sand, as this is likely to make things much worse.

When you are ready to make some optimistic changes, there are some tactics that work pretty well. So, from listing debt priorities to seeking expert support, here are some suggestions.

Identify Outstanding Debts

Maintaining solvency is critical for any business, especially smaller ones. Debt management is one of the more ideal ways to ensure smoother cash flow and keep things on track. However, a company can fall into debt through no fault of its own, such as late and defaulted payments. This is where identifying the source of debt comes in handy. Services such as third-party debt collectors can then work on your behalf to ensure outstanding payments are recovered.

Prioritize Small Business Debt

According to Business.com, almost 70% of small businesses have outstanding debt. So you aren’t alone, but you might be struggling. If the company is struggling with its debt, one of the most powerful strategies is the “snowball” effect to prioritize and pay off existing debt:

Track Income and Expenditure

It is shocking just how simple debt management can be. One of the easiest yet most powerful ways to make a real difference when it comes to business (or personal) debt is to create a budget. Budget has become a dirty word for some people, but it doesn’t mean cutting back on everything. A simple income and expenditure sheet helps you see everything coming and going out. From there, you can see what to cut and how much you have left after expenses.

Follow Up with Invoices

It is good customer service to allow a little bit of freedom, but non-payment is something you shouldn’t wait around for. Your business has provided a service and you deserve to pay for it. Unfortunately there are some customers who will try to get out of paying for what you provide. It is not bad business to chase what you are owed, in fact it is the opposite. Waiting for payments that may never come puts your company at risk, so promptly chase up invoices when needed.

Focus on High-Interest Debt

Some debts are more substantial than others in terms of interest rates. With a high interest rate, you could only be paying the interest while the actual debt stays stagnant. This becomes a vicious cycle that can work to destroy your company’s credit score and finances. Getting high-interest debts out of the way, such as credit cards, frees up a considerable amount once paid off. This gives you room to breathe and move on once you get past the worst of it all.

Create a Budget and Plan

A budget is a powerful way to ensure your business finances stay on track. As mentioned, an income and expenditure sheet is a great start. However, you can enhance this by analyzing costs each month. List everything in the budget, from notepads and pens to specialist equipment. Compare this against income and subtract the totals. Whatever is left is for the business. However, you can also see what can be cut, such as pens, as you can go digital!

Consider Small Business Debt Consolidation

A Forbes report found that the average small business in the US owes around $663,000 to creditors. Therefore, small business debt can be substantial. You can consider a small loan for running costs, but in most cases, a proactive approach is needed. Fortunately, there are debt consolidation loans available that can throw your business a lifeline in times of great need. They aren’t for everyone, and there are pros and cons, but consolidation can be a better strategy.

Easier repayments and debt management

Instead of having to think about multiple loans, consolidation simplifies the process. With consolidation, you only have to think about meeting one payment, which makes tracking easier.

Almost instantly improved cash flow

In many cases, a consolidated payment results in overall expenses becoming lower. This helps free up cash flow you can use for further business growth and meeting operational expenses.

Potentially lower interest rates

The process can include refinancing multiple loans into a single payment with an interest rate much lower than you previously paid. By meeting this, you can also improve your credit score.

Easier ways to save more money

A lower interest rate and a shorter repayment period helps you save money over the lifetime of the debt. This also frees up more funds that the business needs to meet running costs.

Things to watch out for

Debt consolidation is a great option in most cases, but there are caveats. You may have to pay fees for the service, and the interest rate of a consolidated loan could be higher with bad credit.

Transfer Credit Card Balance

Like personal finances, your business might be using credit cards. Fortunately, business credit cards act almost exactly the same as personal ones. This means you can access the same benefits. If your 0% offer is coming to an end, or it has already ended, and you are paying more interest, you can transfer the balance. You can legally transfer your credit card balance to a new account with a better interest rate or even 0% with another bank for greater peace of mind.

Communicate with Creditors

The worst thing you can do is ignore creditors. If you do this they will and are legally allowed to enforce the debt. This is a worst case scenario as they can demand payment or remove goods from your business premises. However, pretty much all creditors will work with you if you are open and willing to come up with a solution. No creditor wants to enforce a debt because it costs them more. They would rather allow you to pay with some kind of plan that works for both.

Suggest a Realistic Payment Plan

Further to payment plans, working with creditors on one that works is essential. However, you also have the right to negotiate. Creditors usually push for the highest payment possible so they get paid more quickly. However, if the terms aren’t favorable for your business, then try to get them to lower the cost. Either way, they still get paid. You don’t have to settle for an unreasonable amount that will strain your business further, so try to negotiate better terms.

Speak to Financial Experts

Going through debt problems alone as a small business owner is a lonely experience that can cause a lot of stress and anxiety. You could lose the business or even personal assets if you used a personal guarantee. However, there are many excellent professionals out there who will work with you on solutions. More often than not, it isn’t as bad as you think, and someone like an accountant can put their expertise to use and come up with creative ways to lower your debt.

Contact Small Business Debt Charities

Financial experts are excellent at what they do, but they can be expensive. On average, the business debt grows by around 5.5% per year (Deloitte), and you may be struggling to keep up. Fortunately, there are also business debt charities that can help get you out of a bad situation:

Keep an Emergency Fund

When you have faced bad debt and the possibility of losing your business, it can be a wake-up call. You never want to be haunted by that again, so now would be an ideal time to put your memories to use! An emergency fund, even a small one, can remove some of the strain of financial difficulties. Save whatever you can when you can within reasonable limits. It is recommended that you save around 20% of operational costs to meet an unexpected expense.

Summary

Identifying what is costing the company money is a great start to handling small business debt. However, there is also help available in the form of a consolidation loan with lower rates. It is also recommended that you begin an emergency fund for the business as soon as possible.