Small Business Habits to Crush DebtBrian Jang ON December 13, 2020
For many people today, debt is not only common, but also normal, and some small business owners accept it as part of doing business. Certain life and world events, such as those we have faced in 2020 can make debt all but unavoidable. Until you can find a way to get yourself out of debt, however, you can’t really move forward financially, and that could be the deciding factor in whether your small business succeeds or fails.
If dealing with debt was easy, no one would have any, but many individuals and businesses find themselves struggling with it. To pay down and pay off your debt, here are some strategies to follow:
Set a Budget and Stick to It
Budgets can be a lot more complex than they appear, with adjustments made to account for not just your expenses and income, but also interest on loans, changing prices on equipment, rising wages, and more. It’s a good idea to create your budget at the start of your fiscal year, but then review it quarterly.
It’s important to stay on top of your budget and that means tracking every individual expense. If you find yourself going over budget, you should be able to pinpoint where and why so that you can address it. You may be tempted to do this by budgeting more for that need but avoid this temptation unless you can reduce somewhere else to compensate.
Pay More Than the Minimum
A common mistake is to get into the habit of paying only the minimum required amount on debts. You might find yourself doing this when funds are especially tight, but if it is happening on a regular basis while you are waiting for “one day” when you can pay the debt off, you are going to have problems. You will want to be sure that you do not accrue any further debt until you have paid off what you currently owe, which will only happen when you start paying more than the minimum.
There will be times when you feel the need to purchase new equipment, or bring a new team member on board, but review your budget and determine whether it is necessary now, or if it can wait until next year.
Increase Your Income
This sounds rather obvious, and it’s not as simple to do as to say, but when your income is not enough to cover your debts, you will need to find ways to bring in more revenue. This might include increasing your volume of business, increasing your rates, or both. Make your product more attractive to your clients to make them want to spend more.
If you can’t find a way to increase your income, your other option is to reduce your expenses, perhaps by finding smaller and less expensive office space, or liquidating unused assets.
Save Your Money
Another suggestion that sounds obvious, but how do you go about doing it? There is a popular suggestion that works: pay your savings account first. Prioritize putting 10% or more of your income into your savings, giving it the same importance as paying your bills.
- Having a cushion in your savings helps you prepare for the unexpected, as well as some expenses that may be expected but still hard to manage, such as any taxes owed, employee bonuses, and other miscellaneous expenses.
Dealing with debt is difficult and if not addressed properly can snowball into a business killer. Getting a hold of your expenses, building (and following) a budget, and saving whenever you can, will help you not just pay your debts down, but pay them off for good.