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Free Your Small Business from the Debt Monster

It’s hard work running a small business, but the past few years have been exceptionally challenging. You finally made it on a relaxing, tropical vacation. As you lay on the beach, dreaming of how you want to grow your business, the sky suddenly turns dark and the ocean turns into a tsunami. Waves tower above your lounge chair, turning into an avalanche of snow, then a crumbling skyscraper about to crush you. You jolt awake in your bed, covered in sweat! It’s only a nightmare…again. 

If your small business debt feels like it’s smothering you, you’re not alone. The National Foundation for Credit Counseling (NFCC), the largest and longest-serving nonprofit financial counseling organization in the United States, explains that “debt is sometimes necessary to get a small business off the ground or to keep it running.” However, it can also bring very real costs, the least of which are your lost sleep and increased stress. High debt and bad credit also limit your company’s ability to grow and take advantage of crucial business opportunities, like forming partnerships or replacing a vehicle as needed. It may prevent you from being nimble and responsive enough to be successful, harsh lessons the pandemic has forced all business owners to face.

If your small business is haunted by the Debt Monster, you aren’t trapped. Follow these 4 steps to free yourself from the weight of your debt. 

STEP 1: Face It

You can’t hide from it, but if you inventory your debt, you will have a clear idea of exactly how much you owe and what you need to bring in each month to cover your costs. Gathering this information may cause anxiety, but the first step to slaying your debt is to accurately measure it. NFCC recommends listing all of your debt with the following information:

  • total remaining balance

  • monthly payment amount

  • interest rate

  • due date

  • creditor

  • method of payment (check, automatic draft, etc.)

  • purpose of the debt

  • type of credit (loan, personal credit card, business credit card, etc.).

You may also want to request a free credit report to make sure you haven’t forgotten about outstanding debts and that there aren’t errors on your record that may be impacting interest rates and other expenses.

STEP 2: Cut It

Now that you’ve listed all of your expenses, look for ways you can minimize your spending. Are you paying fees for using other banks’ ATMs? Review your list of subscriptions to make sure you still need them. Can you cancel the Microsoft Office Suite and switch to the free Google products, like Gmail, Docs, Sheets, and Slides? This is also a way to find hidden cost savings in your personal budget, like choosing 1 or 2 streaming services, instead of paying for Netflix, Spotify, Amazon Prime, Disney Plus, ESPN+, HBOMax, Hulu, and commercial free YouTube.

STEP 3: Power Up

Your business growth plan should also include ways to bring in more money. The quickest way to earn more is to raise your rates. Do it right now! Be mindful of what similar companies in your market and industry charge so you don’t price out of business, but don’t be afraid to ask for more money for your quality products and services. Another easy way to improve your business’s cash flow is to collect all the money that you’re owed. Follow up with customers who have outstanding balances and consider shortening your payment window to 2 weeks on future invoices. It’s often easier and cheaper to turn a past client into repeat business than it is to land new leads, so create customer loyalty programs to keep them coming back. Audit your business practices to identify services that you provide for free and could charge customers for, like meeting time, shipping costs, and electronic payment processing fees. (You don’t have to charge for everything, but you could spin those freebies into perks and discounts to distinguish your company from competitors.) If you’re storing equipment that you no longer use or old products, sell them for a profit and maybe eliminate storage costs, too.

STEP 4: Pay Down

Most importantly, continue to take steady bites out of your debt by staying current with your payments. Send at least the minimum amount to avoid late fees. Your credit score will improve while you’re paying off your debt, so you don’t have to wait for this benefit until you’re debt free. If you know that you’re going to fall behind, talk with your creditors before it happens. They are much more willing to work with you if you take responsibility proactively than if you avoid them and your debt. Cash flow and timing can be tricky for small business owners to balance. Sometimes, a fix as simple as shifting when your bills are due can help spread out big costs, like your mortgage/rent and payroll. If your business is seasonal, your creditors may be willing to match due dates with your revenue cycle. Some utilities offer levelized monthly payment plans, instead of your bill spiking unpredictably during peak heating or cooling periods.

It’s time to free yourself from the Debt Monster and its scary companions, Guilt and Fear. Get your debt under control and allow your small business to flourish. Find ways to leverage your debt, such as using credit card rewards programs and low interest business loans. Replace your nightmares with big dreams for your company’s bright future.