5 Strategies to Help Manage Small Business Debt

5 Strategies to Help Manage Small Business Debt
BY Anna Baluch
Apr 2, 2020
 - Updated 
Jun 14, 2024
Key Takeaways:
  • Small business debt can be stressful because It's often tied to personal finances.
  • It's crucial to create a budget and debt repayment plan.
  • Creditors may be willing to help if you reach out to them.

In a perfect world, you’d never go into debt because you’d have enough cash to cover all your small business expenses. Unfortunately, however, tough times like recessions, pandemics, and other natural disasters do arise and can force your organization into more debt than you’re comfortable with, especially since your small business balance sheet is often closely tied to your personal finances. The good news is there are things you can do to control your debt and keep your finances in check.

Let’s dive deeper into five strategies to manage small business debt.

1. Create a budget

A budget can allow you to identify exactly how much debt you owe and how much cash you have to pay it off each month. To create a budget, follow these steps.

  • Add up your revenue: List all your revenue sources and add them up to figure out how much revenue you generate on a monthly basis.

  • Subtract your fixed costs: Your fixed costs are constant and may include things like rent, supplies, payroll, taxes, and insurance. Tally them up and subtract them from your revenue.

  • Subtract variable expenses: Variable costs are expenses that change over time. These may be your office supplies, utilities, and marketing expenses. Once you come up with an average monthly variable cost, subtract that number from your revenue as well.

  • Determine how much you can allocate toward debt: The number you get after you subtract your fixed and variable costs from your revenue will give you an idea of what you can put toward debt each month. The strategies below may help you increase this number.

2. Reduce costs

The less money you spend, the more cash you have to put toward debts. So it’s a good idea to take a close look at your business expenses and figure out which ones you can reduce or completely eliminate. Here are some suggestions.

  • Reduce rent payments: If your office is too big or you would be just fine in a smaller space, consider moving to somewhere with more affordable rent payments.

  • Negotiate with suppliers: Don’t be afraid to reach out to suppliers and negotiate better deals. If you have a track record of timely payments or buy in bulk, they’re a good chance they’ll work with you.

  • Clear out unneeded equipment and subscription costs: It’s unlikely that you use or need every subscription or piece of equipment you have. So get rid of or sell anything that isn’t essential to your business success.

  • Share with other small businesses in the area: Chances are high that another business is looking to cut costs as well. Scope them out and find out if they’d like to share staff, space, and/or supply costs so you can both save money.

  • Get up-to-date with marketing and communications practices: You can easily spend less by swapping billboards and print ads for cost-effective digital marketing solutions. In addition, you can get rid of your landline if it’s rarely used. Think about your outdated marketing and communications practices and how you can change them to cut costs.

  • Ensure employee efficiency: Productivity can drastically lower your cost of doing business. To make sure your employees are productive and efficient, use software to track the way they spend their time. You can also set deadlines and schedule predetermined time blocks for meetings.

3. Increase revenue

Think about ways you can increase your short-term revenue as it can help you reduce your debt payments and steer your business toward the right direction. You could host a special sale, up-sell or cross-sell your products or services, invest in special deals for high-value customers to ensure their ongoing business, and offer incentives like free shipping or complimentary consultations to bring in more new business. It’s not always easy to increase revenue quickly, but with some planning and creativity, you could set yourself up for longer term growth.

4. Reach out to creditors and lenders

Don’t be afraid to contact creditors and lenders to explore the options they have available. Ask them if you can lock in a lower interest rate or transfer your existing balances to a 0% interest credit card. If you have multiple debts from different lenders, consolidating debt may be a good move. It can allow you to combine all your debts into a single, manageable payment with a lower, predictable interest rate.

Your creditors and lenders may also offer a hardship program comes with a reduced interest rate and payment extension. In some cases, hardship plans require that you write a letter that outlines your financial situation and shows you actually need assistance with your debt.

5. Get customers to pay sooner

The longer your payment terms are, the longer it’ll take for you to get paid and reduce your debt. So your goal should be to motivate customers to pay sooner. If your business accepts long-term payment plans or late payments, you may want to modify your payment terms. For example, any time you land a new customer, inform them that your payment terms are 30 days instead of 90 days. You can also offer early payment discounts or charge late payment penalties.

You don’t have much control over a crisis that affects your small business. What you do have control over, however, is your small business debt. By following these six tips, you can stay on top of your finances even when things get tough.

Need more help with your small business debt?

In these tough times, if you’ve had to put business expenses on your personal credit cards and are having trouble paying them off, Freedom Debt Relief could help you understand your options for dealing with it, including our debt settlement program. Our Certified Debt Consultants could help you find a path to a better financial future. Request a free consultation now.

Debt relief by the numbers

We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during May 2024. This data reveals the diversity of individuals seeking help and provides insights into some of their key characteristics.

Credit card balances by age group for those seeking debt relief

How do credit card balances vary across different age groups?

In May 2024, people seeking debt relief showed the following trends in their open credit card tradelines and average credit card balances:

  • Ages 18-25: Average balance of 7,594 with a monthly payment of 215

  • Ages 26-35: Average balance of 10,822 with a monthly payment of 300

  • Ages 36-50: Average balance of 14,633 with a monthly payment of 410

  • Ages 51-65: Average balance of 15,075 with a monthly payment of 438

  • Ages 65+: Average balance of 15,762 with a monthly payment of 419

These figures show that credit card debt can affect anyone, regardless of age. Whether you're just starting out or nearing retirement, managing credit card debt can be challenging.

Support for a Brighter Future

No matter your age, FICO score, or debt level, seeking debt relief can provide the support you need. Take control of your financial future by taking the first step today.