How to get your business out of debt

How to get your business out of debt

Even years after the COVID-19 pandemic, SBA and EIDL loans have sunk small businesses. Despite efforts to help enterprises during a brutal pandemic, many small companies still have large amounts owed and are on an uphill battle trying to pay it all off. Add that to current credit card balances or lines of credit, and the debt load can quickly increase. Unfortunately, high debt balances encroach on a business’s cash flow, stifling the opportunity to grow and thrive. All the loans also give little in deductible returns. Interest is deductible, but that’s all. And as you probably know, an interest-based loan is never just the face value of what was borrowed. The cost to borrow the money is often two to three times the amount that was borrowed. One redeeming factor of some of these pandemic loans is that the loans were no or very low interest. Again, despite this “free money,” the monthly payments tie up cash that could otherwise go into your pocket or go to grow your business. The end goal is the game: get out from underneath the high debt pile.

Now, despite this glum outlook, there is hope. There is a way out; you can turn the tables on the debt and produce positive cash flow with hard work. It’s not easy, but if you have a viable income through selling your product or service, you can turn the ship around. We often get approached by small businesses that want to get out of debt, and we diligently work with them to make what seems impossible possible. Here are tried and true principles to start attacking the debt.

1. Organize the books. You must know what is owed to whom and what are the terms. Each loan and credit card in QuickBooks must be reconciled to the penny to know and see the mountain you’re climbing. Even if you owe your partner, wife or neighbor money for helping you start your business or survive the pandemic, please put that loan inside of QuickBooks. It might have no interest, but they loaned money for your business and are due the balance. So again, get the entire picture painted accurately so you know what you are up against to pay it all off. Knowledge is power, and this is one

area in which you don’t want to guess. Yes, it’s painful and intimidating, but the peace in having accuracy and a plan is more significant than keeping your head stuck in the sand.

2. Cut spending. Go through your spending with a fine-tooth comb, asthe saying goes. If it’s not 100% essential, cut it from the spending. If you can’t find anything to cut, use an outside perspective, like us, which often brings perspective and new ideas to reduce spending. I often go line by line, looking for ways to help business owners cut spending. This might be changing insurance carriers. This might mean canceling company cell phones. It could be for a time that you cancel your alarm or security. Anything that your business can survive without needs to be cut. I know this is ruthless, but challenging times with high debt calls for sacrifice, and giving up things in the short term to make the business healthy for the long term.

3. Sell assets. In extreme situations where payroll costs can’t be met or if a small business wants to make a quick step in the right direction, I recommend selling assets. Is there something your business owns that you can sell? Are you storing anything that could be sold? Could you reduce your vehicle fleet? Big or small items hold value, and small items can add up. If anything comes to mind, start selling items and deposit the money into your business bank account.

4. Invest in your business. If you, as the owner or partner, have anything personal to put into the business, do so. It could mean selling an individual item or asset to take the sale profits and inject money into your business. Of course, you might instead take a lavish vacation or buy a new car, but if that chunk of cash means getting your business out of debt or making payroll, it’s 100% worth it. Please understand me clearly; I’m not saying to go into personal debt to eliminate business debt. If you have no personal debt and could sell something on the individual side, injecting money into your business for its health and well-being is entirely acceptable.

5. Cut labor. This is one of the primarily costly areas of running a business, and we see big companies or corporations in America do layoffs for different reasons. Of course, we value our people and cannot run successful businesses without them, but consider where you could tighten your efficiency and productivity. Could a full-time job be made part-time? Would consolidating two part-time positions into one full-time position save you money? Are there any positions that could be considered subcontractor positions? This would save on payroll taxes. Is anyone not pulling their weight? I know none of these are enjoyable or even, at times, a consideration, but I’d encourage you to ask yourself if you would instead go out of business and let go of everyone or let go of a few to save the rest.

6. Cut costly overhead. Changing locations for lower rent or moving the business to home offices can save money. Next to labor, rent and utilities, and carrying insurance on the facility quickly add up. Negotiate with your landlord to lower prices. If your rent is genuinely too high, price shop and prove to your landlord that other spaces in the same size and neighborhood are lower. Most landlords rewrite terms instead of losing a good tenant. If your team doesn’t have to be face-to-face, allow some to work from home and consider a co-working space for those who need to be in person. Think outside the box and consider all your options.

7. Increase your sales. Sell more. Produce more. Go after making more money. But I will be clear here: please do not go into further debt by spending more on advertising and marketing. That’s not what I’m recommending. How can you increase sales without increasing your advertising dollars? Here are several ideas: Consider raising your prices. Would bundling your services help upsell? Offer a new service to attract new buyers. Use the promotional items you have in the closet to drum up more business. Pick up the phone and make calls. Send emails. Ask for referrals. Ask for online reviews to bolster your credibility. Although this list isn’t exhaustive, there are many ways to market and advertise yourself that will not put your business further into debt.

Finally, don’t be discouraged. You can do this. As I wrote earlier, it won’t be easy, but we’ve seen businesses turn things around. It means watching their numbers every week and meeting with us every month. It means taking action on some or all of the above tactics. We are your cheerleaders and your encouragement during the hard times. We point out things you don’t see and need to be reminded of. You will need a lot from the cheering section, so if we can do that for you, please let us know. We’re happy to jump on your journey to get out of debt and see you successfully cross the finish line. It would be our honor to help.