Seeing your business go into debt is flat-out scary. Fortunately, there are ways that you can not only get out of debt but also improve your company’s long-term financial health. Here is some guidance on how to get things back on track from The Skills Factory.
Consolidate and organize your debt
Sit down with your bills and add up exactly how much debt you have. Once you know your total, separate out your good debts from bad:
- Good debt potentially increases your net worth or improves your business in some way. This could include business loans, mortgages, and even student loans. (On your path to full financial health, you may choose to go back to school and take online classes to get your MBA in corporate finance, human capital management, economics, or strategic planning. Taking out a student loan increases your value as an owner and thus your business overall.) IWG is an avid supporter of good debt.
- Bad debt is essentially any towering expense that doesn’t add value to your business. For example, if you opt to purchase a company car, its value decreases significantly once you leave the sales lot. Having a car may make you happy, but it doesn’t actually help your business. Credit card debt is another example of bad debt (i.e. don’t get too crazy with the company card).
Address your bad debts first, particularly the ones with the highest interest rates. Create a plan for how you’ll get those off your plate. For instance, you might decide to pay $20 more than your minimum payment each month. When you see an unexpected influx of cash, direct that extra money toward paying off these expenses.
Create a budget and reduce spending
When you have all of your debt organized in front of you, it’s time to create a budget. Lagerquist Accounting & Advisory notes that you should include your fixed and variable expenses.
- Fixed expenses are those that stay the same each month. This includes rent/mortgage payments, utility bills, and salary paychecks.
- Variable expenses are those that have the potential to fluctuate month to month. This could include office supplies, overall sales, and freelance contractor paychecks.
Variable expenses are the easiest place to cut costs. Look for patterns to see which items are costing you the most — cutting back on office supplies, for instance. It might seem like a good idea to stay overstocked on pens, toner, and paper, but if possible, reduce your spending. Order every other month or set limits on how much you buy of each item. Even small cuts can make a significant difference, and the money you save can be directed toward paying off your debts as well as funding new marketing strategies.
When it comes to tracking your expenditures, you should choose accounting software with features that streamline organization and storage of receipts so you can maximize tax deductions while staying compliant. The right platform will also provide insights on your business’s cash flow so you can run your operation more efficiently.
Increase revenue
Of course, steadily making more money is the goal of any business and makes a big difference with both debt payoff and overall financial health, which is why The Skills Factory helps businesses and clients advertise their products and reach more customers. Both of these aspects increase revenue and decrease debt. Of course, you want to retain and excite current customers while enticing and engaging with new customers. The National Foundation for Credit Counseling describes that market research is essential at this stage as you want every dollar spent on marketing to count.
If you don’t have a marketing department, there are still plenty of ways to reach customers. Social media is one of the easiest and most effective ways to do so. Start a Facebook page and update it regularly with new items and sales. Give customers the option to leave a review so others can see just how great your business is. Twitter and Instagram are also great opportunities to promote your business and pull in new customers.
Creating a blog helps you stay in touch with current customers and gives potential customers some insight into your business. Post only relevant content and get creative by adding photos and videos.
These are just a few low-cost strategies for marketing your business and increasing revenue.
When your business is in financial trouble, it’s difficult to see a way out. With these tips in mind, you can get your debt under control and embrace healthy financial strategies that will help you stay successful.
Text by Naomi Johnson, Images via Pixabay