How to Successfully Survive the Burden of Small Business Debt
According to the U.S. Small Business Administration (SBA), as many as 50 percent of small businesses go under within their first five years of operation. Part of the reason for this is the tendency of business owners to take on too much debt.
Although it’s rarely possible to start up a business and get through the initial “growing pains” without some debt, the National Small Business Association (NSBA) reported in 2013 that the average debt of small businesses was over $835,000. If you find your business sinking under the weight of ever-increasing debt and don’t know how to fix it without sacrificing the company, it’s time to take a step back and consider your options.
Dealing With Small Business Debt
First, determine your debt-to-equity ratio, a number showing how much money you owe compared to how much you have. The ideal ratio varies by industry, but the number is under 2.5 for most.
To improve the ratio, look for places to cut costs. Sell equipment you don’t use, liquidate extra inventory, or eliminate unnecessary services. Get in contact with your suppliers to see if they’re willing to give you more time to pay outstanding invoices.
Reconnecting with your customers to improve relationships and increase visibility can help bring in more business. Consider putting more effort into your online presence or building a core group of “brand ambassadors” to spark interest via word-of-mouth advertising.
Small Business Debt Management Options
When dealing with large amounts of debt and multiple payments, you need to prioritize. Determine which debts must be paid off first and which can wait. Talk with your creditors, explain what’s going on, and ask what they can do to lighten the load. They may be able to extend payment terms or change other requirements to make it easier for you to pay down the debt.
Debt consolidation is another popular option. By taking your outstanding payments and creating a plan to cover them all with a single monthly obligation, you can save money and prevent your business from being overwhelmed by excess debt.
Taking proactive measures such as a small business loan to control debt can get you out of the hole and back on the path of success. Instead of becoming just another statistic, your company can defy the odds and thrive long into the future.
Review the infographic below, or go to our resource section, for tips on dealing with your business financials.
About Naftali FeigNaftali Feig holds a bachelor’s degree in finance as well as an MBA.
He has over 15 years of professional experience in financial management, reporting,
and project management. He has worked as a controller and operations manager
and owns his own real estate investment company. He believes relationships are
the key to a successful business. He currently provides consulting and solutions
to entrepreneurs starting their own brokerage businesses.
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