Every business deals with debt in their own way. While debt can be a good instrument to leverage for business, it’s important to understand how you can reduce debt each year and remain in control of your finances. When you are starting out or looking to grow your business, you may have to incur some amount of debt. This debt might be to a bank or lending institution or it could be a personal loan from family or friends. While this may be a part and parcel of doing business or expanding your business, it is essential that you also formulate a plan to reduce debt as your business grows. Let’s explore the different ways you can reduce debt while running your business.
Step 1: Evaluate
Before you can move towards a plan to reduce debt, it is important that you have a clear idea on the total debt you are in. Categorise the various types of debt you are in and keep clear records of all the debt incurred, the details of the lender and the rates of interest etc. By evaluating this debt, you will get a better idea of the situation your business is in and be in a better position to pay off the debt.
Step 2: Prioritise
You may have incurred different types of debt and each comes with its own set of stipulations and urgencies. Once you evaluate your debt as detailed above, you can move towards creating a concrete plan to reduce debt by paying your lenders back. It may be a good idea to prioritise one debt over the other as then you will be able to take a more focused approach to clearing it. While you clear that single debt, ensure that you do not neglect your other debts and make payments, even the minimum amount on a regular basis. Once you clear the first debt, you can move on to the second and the third and so on.
Step 3: Budget
A business that functions with a certain amount of debt needs to function differently from one without. As a business owner, it is important that you ensure that your budgets are revised to keep in mind the debt for two reasons. The first is so that the debt does not grow and you are able to make timely payments and the second- to ensure that you make prudent use of your funds when it comes to debt repayments. Your budget will need to take into account your repayment schedule while ensuring that your business has the funds to expand.
Step 4: Cut Costs
After undertaking the budget formulation, you may notice that there are certain places where you could be overspending. While you repay this debt, it is crucial that you revert to the ways of minimum expenditure and cut all unnecessary costs. Discuss these changes with your employees as they will play a vital role in helping you cut operational overheads. While the above steps will ensure that you will be reduce debt and be debt-free as soon as possible, an alternative route to take is to seek out an investor. While finding an investor might not seem like an easy route to take (and it is not) an investor can help guide you and invest the required funds to get your business out of debt. It is important that you realise that each form of debts will have to be clearly explained to the investor so ensure that before you approach any investor that you have your debt clearly mapped out with a plan for repayment.