Small and medium-sized businesses (SMBs) comprise 99% of the U.S. economy. Additionally, they employ almost half of the available workers. To put it another way, SMBs are a critical component to a stable nation. Unfortunately, not every SMB is financially successful. On average, 20% of organizations have incurred debt between $100,000 and $250,000. As a result, they spend more time paying off creditors and vendors instead of investing in ways to grow.
This situation isn’t unsolvable. There are ways to mitigate these circumstances and become a profitable company. Here are a few ways how your business can successfully get out of debt.
Review Your Budget (or Create One)
It doesn’t matter the size of your SMB, you need a budget. This is an accounting of your revenue and expenses. Normally, it tracks entries through separate categories. For instance, there are instances for investment, technology, and vendor payments. If you don’t have a budget, then immediately create one. There’s a good chance you’re in debt because you never had a reference point to examine. Regardless if you have the funds to populate the categories, they must be listed for further reference.
Should you have a budget, then it needs a review. Your accounting department certainly has the capacity to do this. However, for a different pair of eyes, bring on a financial analyst. They examine your current setup and make suggestions to redistribute your funds.
Create a Debt Snowball
When you’re in debt it’s hard to determine the best course of action to make payments. They all seem important. Especially to vendors that require payments so you receive needed materials. Simplify things by creating a debt snowball. Think about those cartoons where someone rolls a tiny snowball down a hill. As it gains momentum it also collects more snow. Soon enough, it’s large enough to do damage.
The same theory applies in a debt snowball. List everything owed from the smallest to largest values. Then, while you pay the minimums on your other debts, you work to completely pay the lowest. The money normally paid to that one gets “invested” in the next largest debt, and so on. Eventually, you have enough money to tackle the biggest debt you owe.
Consolidation
The main concern related to debt payments is they don’t seem to end. With constant late fees and applied interest, what normally takes months to close ends up being years. Eventually, you pay more in the extras than the principal. For example, debt consolidation in Edmonton and other regions addresses this. Instead of submitting multiple payments, you work with a company to move everything owed into one account. Not only are interest and fees minimized but you also make a lower monthly payment. Plus, with flexible plans, you quickly pay off the debt consolidation loan.
Reduce Expenses & Increase Revenue
When your business is in debt it feels like the world is against you. In this situation, you can’t panic or relive past mistakes. Instead, it’s critical to push forward to successfully get out of debt. Doing this gets you to focus on the problems at hand. Thus, you find ways to reduce expenses. How much you regularly spend eventually moves into autopilot mode, so the expenses aren’t realized until it’s too late. As mentioned above, a budget review is necessary. It reveals expenses for items that aren’t required.
At the same time you do this, you also need to increase revenue. This is where the focus comes in. On top of creating new products and services, employee retraining is necessary. Especially for those in sales and marketing. They need new methods to boost growth and increase your client base. As a result, revenue starts to increase. This permits you to pay more toward your debts. Eventually, the amount of money you bring in is more than you owe. If you keep going, you never end up in debt again.
Conclusion
The methods mentioned above are a small group of suggestions to successfully get out of debt. However, none of it happens if you feel like there’s no hope. You started your SMB because you have a product or service you know can help others. Keep that in mind as you start knocking down the amounts you owe.
