Debt is part of running a business. Hiring employees, investing in equipment and participating in industry tradeshows all costs money, and can be a smart use of borrowed funds. But debt can also can sink an otherwise successful operation.
The average U.S. small business owner has $195,000 in debt, according to a 2016 survey by Experian. Winnie Sun, founding partner of Sun Group Wealth Partners in Irvine, says small-business operators should set a goal of repaying all debt within 12 months of launching a business.
NerdWallet staff writer Steve Nicastro offers these tips for eliminating small-business debt:
Increase revenue – It’s the goal of every business, every year, right? But what steps are you taking to accomplish this? Nicastro suggests using customer loyalty programs, be active on social media, and explore your pricing power. Volume discounts can help a small business stay competitive.
Cut costs – So many entrepreneurs find ways to cut costs at home, but fail to explore those possibilities with their businesses. Cost-cutting measures may include downsizing to a different office, splitting costs with similar businesses and selling off equipment that is not being used or buying used equipment when something is needed.
Shorten payment terms with clients – Strengthening your cash flow can help you tackle debt. Give new clients 30 days to pay instead of 90. Offer an early payment discount or add a late payment penalty.
Refinance loans with high interest rates – If you can’t pay off a loan, investigate whether refinancing makes sense. Business credit card debt can be transferred to a new card that offers a 0 percent promo period. It’s important to keep paying down these loans and not increasing the balance.
If your business debt has become unmanageable, inaction is the worst response. Contact knowledgeable business bankruptcy and debt consolidation lawyers who will review your situation and recommend an effective course of action.