While personal debt gets a lot of discussion and publicity – especially in the wake of the recent financial crisis – most people outside of the business world don’t realize how serious debt can be for small businesses. As an entrepreneur, knowing how to get out of debt as soon as possible will increase your chances of being successful.
Escaping the Burdensome Weight of Debt
It’s normal to have some debt in business. After all, it takes money to make money. So, if you don’t have cash available at your disposal, you have to find some. However, you should never take on so much debt that you feel like drowning. And, contrary to popular belief, it’s not smart or fiscally responsible to have a bunch of revolving debt. The smartest thing you can do is eliminate it and enjoy the freedom of having zero payments.
Shedding debt and pursuing financial freedom for your business requires a very specific and targeted strategy. Here are some tips to help you formulate a plan of attack:
Eliminate Unnecessary Spending
One of the biggest factors hurting your ability to escape debt is an inflated budget with too many unnecessary expenses. By limiting your spending and only focusing on the line items you absolutely need, you can save money and be more aggressive with your debt payments.
Not sure where to start? Take a page out of business owner Royale Scuderi’s book, “narrowing my business focus to be one of the most effective strategies to improving my bottom line. By limiting the types of services I offer and projects I accept, I am more productive and produce higher-quality work.”
Find New Sources of Income
Some people like to simplify and only focus on a few products and services, while other businesses are able to grow their bottom line by actually finding new sources of income. Consider looking for new opportunities that increase revenues without drastically raising expenses.
Pay Off One Debt at a Time
When you have a bunch of different loans and debts, it’s easy to feel paralyzed by what you should do next. Eventually, this paralysis by analysis may lead you to inactivity. So, instead of aggressively paying down one debt, you just make the minimum payments on all and slowly trudge along, which is a bad choice.
“Rather than sending out 5 checks in small amounts to different collection agencies, trying to satisfy all of them at once, pool that money and focus on paying off one debt at a time,” , a bankruptcy attorney who deals with these situations firsthand. “This will prevent the repayment process from dragging on and collecting more interest on multiple accounts. If you pay off one debt at a time, you have one less debt collecting interest while you pay off the next one.”
If you have multiple debt payments with higher than average interest rates, it might make sense to actually into a single payment with a lower rate. Not only does this save you money, but it simplifies the entire process and allows you to focus on writing one check at a time.
Don’t Make Debt Your Norm
Debt might be normal, but it doesn’t mean it’s good. While it can help you invest in assets that you wouldn’t be able to purchase on your own, it can also lead you down a dangerous path towards bankruptcy. You have the ultimate say in how you run your company’s finances, but don’t make debt your norm. It’ll eventually come back to bite you.