How to Pay Off Business Debt and Boost Your Financial Health
Business debt isn’t always a bad thing. Sometimes you have to take on debt to get your business off the ground or stay afloat during a sudden sales slump. However, too much debt can hold you back from accomplishing your financial goals. Serious business debt can even put your personal finances at risk! Thankfully, you are far from powerless when it comes to eliminating debt and securing a strong financial future for you and your business.
Let’s explore some steps you can take to dig your business out of debt and improve your financial health!
Prioritize Your Personal Finances
If you’re not careful, your personal finances can affect your small business and contribute to increasing levels of debt. Understanding your personal financial habits is critical. Spending all of your business profits on personal things, neglecting to save for periods of uncertainty, and ignoring your personal credit score will not get your business out of debt. Start adopting healthy money habits in your personal life and they’re bound to roll over to your business.
There are many great tools you can use to get a better grasp of your personal finances. For example, Nav.it is an app that can offer insight into your money management habits and spending trends with the help of goal trackers, financial checklists, automated expense reporting, and more. Tools like these will put you back in the driver’s seat!
Shield Yourself With an LLC
While we’re talking about your personal finances, it’s important to consider how your business debt may impact you. Are you personally liable for your business debt? If your business is structured as a sole proprietorship or partnership, the answer is yes. As an independent contractor, you are not legally separate from your business, meaning you personally owe every penny your business owes. Creditors can come at your personal assets if you default on your business loans.
One of the best ways to shield yourself from liability is to form an LLC. When you start an LLC, you and your business are considered separate legal entities. As a result, your personal assets are safe. You can form an LLC online fairly easily with the help of online formation services. Because different states have different formation requirements, it’s important to read up on the specific laws in Washington state before moving forward.
Create a Business Budget
Once you’ve taken care of your personal finances, you can direct your attention back to your business. Establishing a business budget will enable you to gain control over your business spending so you can better allocate your available cash towards debt payments. Before you create your budget, however, you will need to track your spending for a little while. This is much easier with a separate business bank account—which you will be able to open after forming an LLC.
In addition to fixed and variable costs, Acquira explains that you will also need to estimate your revenues and cash flows. After tracking your expenses, you should have a general idea of where your money is going. Use this information to build a business budget that’s lean, realistic, and realistic.
Make Expense Cuts
Don’t hesitate to jump on opportunities to cut unnecessary expenses from your budget. Keeping more cash in your business will enable you to make higher loan payments and get out of debt faster! Some common business expense cuts to consider include:
Going paperless to reduce your spending on paper, ink, and shipping.
Moving your business to the cloud to save money on servers and IT help.
Buying supplies and merchandise in bulk for discounts.
Going virtual and reducing the size of your office space.
Using free meeting tools so you can travel less.
Hiring freelancers instead of full-time employees.
(For pro-tips on tackling and reducing your utilities: check out this article.)
Tackle High-Interest Debt First
There are several different ways to tackle debt. If you find that debt payments are tying up a lot of your working capital, work on paying off your high-interest debt first. This likely includes credit card debt and personal loans. To pay off high-interest credit card debt, pay more than your minimum, automate your payments, and focus on one card at a time. You can also consolidate your credit card debt into one account. If you can find a 0% balance transfer credit card that gives you a long interest-free introductory period, even better!
Negotiate with Your Lenders
Another way to reduce business debt is to renegotiate your loan terms with your lenders. You might be surprised by how many businesses regularly miss scheduled payments like utilities and rent. As a result, lenders are often willing to negotiate with business owners who want to do what they can to avoid missed payments or get back on track after falling behind. Talk to your lender and propose a realistic payment plan based on your current revenue and projections. You could even offer to settle the entire loan for a specific amount that’s lower than your outstanding balance.
Consult a Professional
Confronting serious business debt can be overwhelming. When in doubt, don’t hesitate to contact a professional! You can work with firms that specialize in business debt strategies. These companies will talk to your lenders and work to restructure your debt to make it easier to pay off. InCharge.org suggests choosing a debt management counselor through a certified professional organization like the NFCC. Be sure to look up some online sources for news or testimonials about different debt management companies. Consulting an expert can also help you avoid falling victim to common debt settlement scams.
Business debt can hold you captive and prevent you from pursuing projects that will take your company to the next level. If you feel limited by your debt, now is the time to do something about it! Start looking into your debt management and repayment options so you can free up cash for the things that matter most!
Are you looking for ways to improve your financial wellbeing? Try out the Nav.it app to gain insight into your spending patterns and get on top of personal money management. Check out our website to learn more!