According to a 2021 survey, just 26% of all small and medium-sized companies in the United States had no outstanding debt. The remainder had debt levels ranging from under $25,000 to over $1 million.
Few business owners want to see their business fail. Yet, skyrocketing debt levels can see that become the reality. If you’re motivated to bring your business back from the brink and make active efforts to shrink its debt levels, you may experience success with these actions:
Hire a Virtual Chief Financial Officer (CFO)
While your business might benefit from an in-house CFO, not every business budget allows for such a person. Full-time CFOs can cost hundreds of thousands of dollars annually. In that case, consider hiring a virtual CFO instead. You can enjoy many of the same benefits and services as an in-house CFO without an ongoing salary commitment. Virtual CFOs can be a gap filler in your financial department. Among many things, they can:
- Assess your business for achieving profit targets
- Improve business reporting
- Identify cash flow increase opportunities
- Maximize your ROI
- Identify increased equity opportunities
- Turn around poor business performance
Create a Financial and Budget Plan
Sometimes, businesses struggle with their financial situation because they don’t understand the whole picture. They don’t know what their regular income and outgoings are and what is costing them the most money.
That’s why creating a financial and budget plan can be so important. You can’t hope to start enjoying debt relief if you don’t know what contributes to it. With the help of financial experts, go through your financial statements with a fine-tooth comb. At a minimum, you might then know what you can cut back on to reduce your outgoings.
High debt levels aren’t always related to overspending. It can often relate to how you’re invoicing your customers and how they’re paying. When you have to pay for your products and services before on-charging them, you rely on your customers to pay promptly. That doesn’t always happen.
Get into the habit of sending invoices quickly and providing a short payment window. You can choose your payment window based on the timeframe you have to pay your creditors. If your customers typically ignore your Days Payable Outstanding (DPO) terms, offer incentives for early payment, such as discounts.
Negotiate With Creditors
The payment terms you agreed to with your creditors don’t always work for your unique financial situation. Rather than risk falling out of favor, see if you can negotiate debt settlement with them. Try to negotiate more favorable payment terms or even negotiate lower interest rates. You won’t know unless you ask.
Paying off debts with high interest rates can put a strain on the average business. You might even struggle to generate enough cash for everyday operational costs. Consider selling non-essential assets to free up funds for working capital and debt repayment. The more money you can free up to pay off your debt, the less you often have to pay in interest.
Getting a business out of debt is not a fast process, and many business owners struggle. However, you might make significant progress toward your goal by getting expert help, creating a financial plan, and improving your financial processes.