Nearly half of small businesses fail within the first five years, according to the Small Business Administration. Small business debt paralyzes some of these companies, leaving them unsure of their next move.
This doesn’t have to be you. The good news is that while you might feel pressure to make a difficult decision between building up your business or paying off your debts, these goals can be pursued simultaneously.
Leverage the time you are spending paying off debts by making intentional choices that will ultimately promote the success of your business. Here are 10 steps to getting started.
1. Compare Expenses with Long-Term Plans
Take time to look at your future goals and expected long-term profits. Managing a business requires looking not just at today’s costs, but also how investments will eventually pay you back. Only incur debts that are required to maintain your business. Wait until your business is bigger to purchase the newest equipment available; stick to necessities.
2. Build Credit
Consistently making payments on debts can allow you to build your credit, which you can use for future investments. At the same time, responsibly addressing debt demonstrates to future lenders that you are a reliable borrower.
3. Prioritize Debts
Gather data on all your debts, including minimum payment totals and interest. Start paying more than the minimum on the account with the highest interest. Focusing on one account at a time will enable you to meet goals and put the rest of your profits into business costs.
4. Set Up Automated Payments
Sometimes credit companies or loan servicers offer discounts if you set up your business account so that monthly payments are automatically deducted. This will save money and ensure you don’t miss payments.
5. Reward Yourself
Keep the momentum of a growing business by celebrating when you meet debt repayment goals. Reaching that halfway point of a loan that you have been faithfully paying off is a huge accomplishment. Treat yourself to a dinner out, and then keep up the good work.
6. Consolidate Loans
Debt consolidation — where multiple loans are combined into a single loan — can be a feasible solution to overwhelming payments. A new loan can lower your monthly payments, so that you have money left over to keep your business functioning.
7. Market Your Business Without Spending
Utilize free social media sites to advertise rather than spending money on marketing. Right now you can access thousands of new consumers by taking advantage of Twitter, Facebook, LinkedIn, Google+ and blogging.
8. Hold Monthly Sales
Once a month, offer a discount on your products and services. You can use social media to get people excited about the sale. Plan to dedicate the extra funds you generate from these events to debt payments.
9. Prepare for Slumps
One way businesses get stuck in a debt cycle is by borrowing during dry spells when sales fall and bills must still be paid. This may force you to fall deeper into debt as you borrow more to stay afloat. Instead, look at industry forecasts and have savings reserved specifically for these times.
10. Get Help
It’s tough to handle debt on your own. When it becomes impossible to make payments or afford to meet business needs, turn to a credit counseling service, so that financial experts can negotiate with creditors on your behalf and get you back in control.
Save where you can, spend where you need to and prevent loans from making your business stagnant. The decisions you make with the resources you possess today can contribute to having a debt-free business tomorrow.
I disagree with much of what is written here. I’ve run my business for 14 years. In that time I nearly ran my business into bankruptcy twice. I’m a believer that you got to spend money to make money.
After going through years of struggle and success dealing with debt, here’s the advice I can give from my personal first-hand experience.
1. Long term plan: get out of debt. Cut up your credit cards today. Give them up forever and only take on debt for real estate (office building or home) but that ‘s it. If you need help creating a plan to do this look into the Dave Ramsey Financial Peace University.
2. Forget Credit Scores: FICO scores are the I love debt scores. You can 100% live a cash based lifestyle. Most people will not believe this is possible or that you can buy a car or other big items with cash only. It can be done though.
3. Prioritize Debt: commit to paying minimum payment on all debt monthly. Then take all extra money and apply it to your lowest debt owed not highest interest. In order to make big changes you need quick wins. Pay off the little debt first and then take the money grow the first payoff and apply it to the next smallest debt. This is a psychology game where we are building quick success to keep you motivated to build a snowball.
4. Payment plans are fine, but never give a credit card company access to your bank account. They’ve been known to take money even when you’ve not agreed to payments if you run into issues.
5. Reward yourself: get yourself sales training. Learn how to sell better so you can land bigger deals. Invest in growth opportunities – look into companies like Kurlan & Associates or Sandler Sales. Learning how to professionally sell will pay itself off in no time plus help you stir up more cash to pay off more debt.
6. Consolidate you business development efforts: add more marketing and lead generation as well as sales training. Getting marketing and sales on the same page.
7. Market like crazy: use inbound marketing to create thought leadership for yourself (your company) as well as lead generation. Inbound marketing is blogging (2 articles per week at 200-600 words per article). Then promote articles to Facebook, twitter, LinkedIn, etc. then build you traffic up to several thousand visits per month then build landing pages with contact forms and offer free ebooks for anyone that fills out the form and becomes a lead for sales team.
8. Never offer discounts: discounts make buyers think you are overpriced. If they think that they will only do business with you durring discount times.
9. Prepare for slumps: step one before paying off debt is set aside $1000 for an emergency fund. Only use this money for emergencies. Then once you get all debt paid off, but real estate start saving 3 to 6 month of your living expenses. Keep these as emergency fund so you’ll need this to be liquid and accessible not tied up in investments. Then once you have this big nest egg in place save 15% of your income for your retirement and kids college funds.
10. If you need help join a Dave Ramsey FPU class. The kits are roughly $99 and this is for a family and lifetime membership. These classes will educate you on babysteps to get out of debt, create accountability with your class mates and set you up to pay off debt, build wealth and learn how to give it away and help others.
Good luck! I hope this helps.
Love your response. So real and so true. Thanks for sharing!
Yes definitely this type of blogs are really help for people great job.