Effective Debt Management for Business Owners

Debt can be an effective tool for growing a business, but it can also feel like a burden if it becomes too much to handle. Finding that balance and managing debt effectively is what can set a successful business apart from the rest. With growth expected to slow in the coming year and a potential recession on the horizon, more and more businesses are taking a harder look at their debt load to prepare. 

Of course, managing debt is easier said than done. Business owners have countless tasks on their plates with varying levels of importance. Sometimes, just finding the time to make a strategy for managing debt can be a massive first step on the road to tackling the debt for good. 

Here are some helpful tips that business owners can utilize when they feel like their debt has become overwhelming. 

 

Take Stock of All Debt

 

For some, this may seem like an obvious step. However, it’s very common for businesses to have multiple sources of debt across multiple lenders with different payment structures. This debt can include credit cards, lines of credit, fixed loans, outstanding bills, credit owed to other businesses, and more. 

Once a full inventory of all the debt is completed, it’s much easier to prioritize debt payments and make a strategy for paying it all down. It’s recommended to start with the highest-interest debt and work down from there. By focusing efforts on paying down high-interest debt, like a credit card, interest payments will be reduced, which creates more cash flow for paying down the next piece of debt on the priority list.  

Another strategy is to pay down the smallest debt balance and work up towards larger debts. This offers more of a psychological boost, as it can be motivating to see an entire source of debt wiped away quickly. 

No matter what, finding a strategy that works and can be followed is the most important thing. 

 

Consolidate and Reduce Interest 

 

Paying down debt is often the goal, but there are also ways to reduce debt burdens before making a penny in extra payments. As mentioned, many businesses have multiple sources of debt. After taking stock of all this debt, it can be helpful to look for opportunities to consolidate debt or request lower interest rates. 

A great example of a consolidation opportunity is if there are several revolving pieces of credit like a line of credit or credit card. Getting a consolidation loan to pay off these debts and lock them into a fixed rate with predictable fixed payments can make the debt easier to manage and may also offer a lower interest rate. Banks tend to be more inclined to offer favorable rates to larger clients in order to win and keep their business. 

There is also the strategy of simply asking for a lower rate. Lenders would much rather work with their borrowers to find a strategy to pay off the debt instead of going through collections, should it ever come to that point. A lender will usually get less money from collections than they would if their client paid off the loan, even if it’s at a lower rate. It never hurts to ask lenders how they might be able to help. 

 

Get a Handle on Spending 

 

Often, debt is used by businesses to grow. Amazon is one of the great examples of this. Known as one of the most successful businesses today, Amazon took seven years before it turned a small profit. Prior to that, since the creation of Amazon in 1994, it was running at a loss and operating off of debt.  

Eventually, if the debt is to be reduced, then spending likely needs to be reduced alongside it. Taking a full account of spending and looking for areas of improvement can provide more cash flow to pay down debt. Are there expenses that were designed to grow the business but are no longer delivering results or are no longer necessary for the business? Finding a few small opportunities for reducing spending can make a big difference in debt load. 

It’s not always possible to cut spending, but it is worth looking at in combination with other solutions. 

 

Increase Business Income 

 

Just make more money. Easier said than done, right? Successful businesses can find new revenue streams to keep growing, which means more money to pay down debt. Apple, the most valuable public company in the world, made $8.1 billion in Q3 2022 from wearable products alone. This is a segment of products, like AirPods and the Apple Watch, that didn’t even exist just a few years ago. 

While not all businesses are in a position to develop a totally new stream of revenue, there are several ways to grow income. Even simply increasing prices slightly can have a massive effect on the bottom line. Offering extra services for a fee or creating a tiered model to convince customers to move to a higher price point are other clever ways to increase prices and find new revenue opportunities without a blanket price increase or developing totally new products or services. 

 

Have a Plan and Stick to it 

 

Regardless of what method you choose to reduce debt, having a plan for your business is key. At Cukierski & Associates, we have been a trusted partner for businesses at all stages of growth. With over 200 years of combined experience, our team can provide the honest and professional advice that business owners need to take control of their debt. 

To learn more about our team and how we can help your business, contact us today.