When you are an entrepreneur, one of the things you should expect to happen is accruing debt. At some point, this is inevitable when you own and operate your own business. Taking out a business loan, opening a business credit card or opening a line of credit can help your company, but at the same time, it can cause a cash flow problem and put it at risk. Fortunately, if you do run into the problem of debt, there are a few things you can do to dig your way out.
Take Inventory of Your Debt
The first thing you should do is take an inventory of your total debt. Sort out all your debts by interest rate and monthly payment, including any business loans, business credit cards, lines of credit and any outstanding payments you owe your vendors. Performing this task can help you to determine which debt you to concentrate on first. In general, the best way to start is to focus first on any debt that has the highest interest rates.
It’s important to keep in mind that the smartest goal as an entrepreneur is to make sure you repay your debt within the first year that your company is in business. That will lower your risk of having to file for bankruptcy.
Refinance High-Cost Debt
If you have high-cost debt that you simply cannot afford to pay in full, you should consider refinancing it. If your credit is good or excellent, you can take out a loan with lower interest to repay the original loan. It will help you to pay back what you owe. Additionally, if you have recently bought a car for business purposes, you might want to refinance a title loan. This is a good way to save extra money, even if you are close to paying off the vehicle. It results in lower monthly payments on the car, lower interest rates, prevents defaulting on the title loan and prevents repossession of the vehicle.
Cut Any Unnecessary Costs
Look at your business finances and identify anything that put your company in debt. If you have an unnecessarily large office but very few employees, you will want to downsize to a smaller office with lower rent and utility bills. You can also share the costs with another company, such as sharing office space and even employees, which can save money in the long run. Also, sell any office equipment or supplies that aren’t needed or that go unused. You can even buy used equipment instead of brand new.
Take Another Look at Your Budget
When business debt continuously piles up, it is most likely due to your budget being ineffective. Take another look at your budget and make necessary tweaks to it or create a whole new budget that is based on the company’s current financial situation. It’s important to ensure that your business revenue can go above and beyond covering your regular monthly expenses, such as rent and utility bills.
Talk to Your Creditors
Contact your creditors and explain the situation. Tell them that you are looking to pay back your debt and are trying to work toward a way to be able to do so. This will make your creditors more willing to negotiate with you, such as eliminating fees and even interest rates, because they want to be repaid.
These are just a few things you can do to dig out of debt as an entrepreneur. Be diligent and you will eventually be debt-free.