Small Business Debt Management: 5 Steps To Get Back on Track

Small business debt management is a critical part of running a business, especially if you fall behind on your payments. It’s not just about keeping bills paid but looking toward future horizons and where you want to take your business. You need control.

While running a business necessitates risk, you always want to minimize your weaknesses. Dealing with debt, leveraging it, and making it work for you is where most companies make some of their first mistakes. If you have fallen behind on your payments or want to get ahold of your business finances we can help. We’ve got some tried and tested methods that can get anyone back on track.

Here are 5 Steps to get your small business debt management back in order and working for you:

• Assess the situation and cut costs

• Talk to your loan advisor or creditors about your monthly payment

• Consolidate your debt

• Hone your strengths

• Hire a small business debt management company to help you

Assess the situation and cut costs

When you find yourself being hassled by creditors it can be easy to panic. Pretty soon, the calls and foreboding thoughts start to take up more and more mental space. You don’t know how much you owe, and you don’t know how you’re going to climb out of this hole.

Stop. Breathe. Plan.

The first step in small business debt management is to assess the situation and start planning. You need to know exactly how much debt you are in, who you owe it to, and the interest. Small business owners oftentimes don’t realize that business debt can have large ramifications for both your personal and business credit. Create a spreadsheet listing:

• Business credit card debt
• Bank Loan debt
• Uncollected invoices 
• Any other debt your business may have incurred through purchases

Now that you have the total amount of debt you owe, you need to list the cost of doing business. Next, you need to start cutting costs. Cutting costs may require you to switch suppliers, stop selling certain products, or hire fewer employees. Remember, you are cutting costs and contribute the extra revenue toward the balance of your existing debt. Focus on the basics of your company and what is absolutely necessary to complete daily activities. 

Oftentimes small businesses can spread themselves too thin by offering unnecessary products or not collecting on invoices. Don’t let this be you. Stay on top of your finances. You can even have an external audit done to identify key areas of your business that can be cut. 

This is, of course, assuming that the markets are not volatile or suffering from a global pandemic. Assuming you’ve already done this, let’s look at your other options.

Talk to your loan advisor or creditors about your monthly payment

Your creditors can’t be ignored. Eventually, they will come for you by a court order. Instead, focus on talking with your banker or creditor about lowering your interest rates or extending your loan repayment.

Let’s break this down. A bank loans you money, and after a couple of years you start to struggle due to unforeseen circumstances. What would be a better investment choice, going after you immediately and not recovering the losses, or allowing you to extend the loan and still receive more than enough money to pay the debt and then some? The same can go for credit card companies as well.

These companies have a vested interest in your success and paying off your debt. However, the problem some small businesses make is not having a plan when talking to the bank. They are going to want to review your financial records and know that you have a gameplan to recoup the losses. Don’t go in blindly. Talk with a CPA and write out a new business plan based on your new business model. Negotiating a business loan is different with each lender. Be prepared with this small business debt management technique.

Consolidate your debt

In addition to extending your loan or lowering your interest rate, you can also consolidate your business loans into one payment. This can be beneficial for a couple of reasons:

1. You are carrying multiple loans with different interest rates
2. You want a single, lower monthly payment
3. You can (sometimes) improve your credit score

These items are not guaranteed, but with the right bank you can consolidate your debt. A lot of people go this route because they find the debt much easier to pay off and less stressful. They make one payment a month and they are done. If you find a lender that will meet these criteria, then this may be the best option for your small business debt management, although, you may want to talk with a financial advisor before signing the dotted line.

Hone your strengths

Get back to basics. We’ve touched on this about cutting costs, but we’d like to go further. When businesses have large amounts of debt, it can be difficult to identify the exact cause of their debt unless you have a trained professional. 

There is some advice that is always relevant. Lean into your strengths. Focus on the products, services, and customers that make you the most money. Improve non-business expenses like customer service, company culture, and effective inventory management. Focus on your core value offer and improve it. 

If you don’t know what exactly that is, you can always ask your customers. You can offer discounts for surveys, and track your best selling items with accounting software.

Hire a small business debt management company to help you

If you are looking at your debt and not sure you can do this on your own, that’s okay. You don’t have to do it all by yourself. In fact, many companies hire people to help them manage their debt.

A CPA firm can help you navigate debt consolidation as well as large debt management. However, not every firm is the same. You want and need a firm that will help you grasp a full view of your debt. With the right partner, you can pay off your business debts or leverage them for special purposes. Some firms specialize in small businesses, while others specialize in large corporations. 

You also want a CPA firm that does everything by the book. There have been numerous cases of small business owners reaching out for help only to be taken advantage of. When you meet with a CPA ask about their credentials, and how they make their money. Most CPA firms make their money off of fees.

If you are considering hiring a CPA firm for your small business debt management, then consider Sheffield, Trackwell, and Rapp. We can help your business manage your debts and leverage them. Contact us today and find out how we can help you!