Debt is often an inevitable part of doing business. Business loans are a useful way to raise cash quickly for large purchases and rapid expansion. Some amount of debt is fine, as long as your business can support it. But you can get yourself into trouble if your debt level becomes unmanageable. In this case, moving to pay off business debt quickly is important, to avoid negative consequences.
Here are ten steps you can take to pay off debt fast and get yourself back on more solid financial footing.
Step 1: Pay Off Business Debt Quickly By Negotiating With Your Creditors
The first step toward paying down your debt is to talk with your creditors about revising your payment terms. Particularly if you’re having a hard time servicing your debt, your creditors may be willing to reduce your interest rates or work out more affordable payment terms.
The last thing creditors want is for a business to go into bankruptcy, go out of business, or otherwise default on their debts. If they can work with you to assure that they get what’s owed them, even if it’s at a reduced rate, they frequently will.
Step 2: Consolidate Your Business Debt
If your creditors aren’t willing to work with you, or if their accommodations aren’t enough, you can look at debt consolidation. Depending on how many creditors you owe, and what the interest rates are on each of these accounts, consolidating them all into one new loan, at a lower overall interest rate, can be an excellent way to pay down debt quickly.
This can work well if, for example, you have balances on multiple credit cards, each carrying interest rates in the 15% to 22% range. Getting a new business loan at 10% interest that pays off these balances will drastically reduce your required monthly payments. If you can then continue to pay close to what you were paying before, more money will go toward your loan’s principal, and you’ll pay off your debt more rapidly.
Step 3: “Stack” Your Payments and Target One at a Time
If you still owe multiple parties even after you’ve negotiated better payment terms and/or consolidated your debts you’ll want to “stack” them, from highest interest rate to lowest, and target them for repayment in that order.
Each month, you’ll put any extra income you have toward paying off the debt at the top of the stack. This helps you pay business debt quickly by eliminating the debts that cost you the most in interest first. In the long run this will save your business more money than trying to pay off all of your debts simultaneously.
Step 4: Renegotiate With Your Vendors or Find New Ones
In the first three steps, you reduced your overall debt load and targeted payments in the proper order. This alone will help you pay off business debt quickly. Next, you want to talk with your vendors about new terms that could save you money when making purchases.
See if they’re willing to reduce your overall pricing, or give you a bulk discount. For any open invoices, ask if they’ll extend your payment terms to reduce your monthly payment.
Your vendors know that they aren’t the only companies you could purchase from. They may be willing to work with you, lest they lose your business to a lower-priced competitor.
Step 5: Create a Business Budget
In order to pay debt quickly you need to have a comprehensive understanding of your income and your expenses. Work with your accountant or accounting department to see where your money is coming from, and where it’s going.
Once you can see your full financial picture, create a realistic budget that covers all of your necessary expenditures. Then categorize all of your other expenditures and allot realistic but affordable amounts for each one.
Step 6: Cut Unnecessary Spending
Look at your monthly expenses and weed out any payments that aren’t required to support your business.
For example, if you’re paying for a coffee service for your employees, temporarily suspend it. Coffee certainly helps with morale, but it isn’t a necessary expense. Comb through all of your expenses and eliminate any of them that don’t directly contribute to profitability.
Just make certain that you communicate with your employees. If they understand that the reason certain luxuries are going away in the short term is to guarantee that the company is viable in the future, they’ll likely get on board with the cuts.
Step 7: Reduce Other Expenses to Align With Your Budget
To pay off business debt quickly you need to live inside of the budget you created in step 5. Eliminating unnecessary spending gets you operating lean. Next, you need to pare down necessary expenses so that you aren’t spending more per category than you’ve allocated in your budget.
This might mean using company resources more efficiently so that you can limit overall purchases. It might also require consolidating overlapping job functions to reduce labor costs. This step can be difficult, both procedurally and emotionally, but if short term cuts can help guarantee your company’s long term health, It’s better for most of your employees in the long run.
Step 8: Increase Existing Revenues
Reducing expenses will save you money, allowing extra funds for debt repayment. You can accelerate this process on the other side of the equation by increasing revenues.
Your existing revenue sources are the first places to look for potential gains. Examine the viability of increasing your prices. If you can institute modest increases without unduly upsetting your customers you’ll see immediate gains on the income side of your balance sheet, helping you to pay off debt quickly.
Step 9: Find New Revenue Sources
Finding new revenue sources can be more difficult than simply raising your prices, but it’s definitely worth pursuing, as new income sources can make a big difference in your financial situation and help you pay off business debt quickly.
You might try adding new products or services to those you currently offer. Getting your salespeople to work on upselling new customers can add extra income on a regular basis.
Examine the markets you’re servicing to see if there are untapped niches you hadn’t considered before. You might also look at the viability of expanding into related markets.
If your sales structure is such that adding new salespeople will, on the whole, mean more sales and higher profits, then expending your sales team can make good business sense, as well.
Step 10: Make Debt Service a Priority
You’ve gotten your debt load prioritized and under control. You’ve simultaneously reduced expenses while increasing your revenue. Now you need to put as much money as you can each month toward paying off your debt. After all, this is the reason you engaged in steps 1 through 9. This process freed up as much extra money as possible to help you pay off business debt quickly. The more you can put toward debt service, the faster this process will go!