There are a lot of really legitimate and understandable reasons why your business has incurred debt. If you’re a solo entrepreneur, you have to do it all on your own. In the beginning, you may have gotten into debt from purchasing inventory, renting space, buying equipment, buying ads, and paying for professional consultants.
Or, there may have been sluggish sales for reasons beyond your control, like the recent pandemic or an economic downturn.
Whatever the reason, you may find that your debt is hurting your financial future and your ability to run your business successfully, and you’re looking for ways to pay that debt down.
Here are some tips on how you can get your business out of debt and running at full efficiency.
A Debt Reduction Plan
The first thing you’ll need to do is formulate a debt repayment plan. Determine exactly how much you owe and to whom. Collect all your bills, the payoff amounts, the interest rates, and the payoff date for term loans. Prioritize the debts you want to pay off first, perhaps those with the highest interest rates or those that could incur legal complications or repossession if not paid.
If your business has been structured as an LLC, or Limited Liability Company, your personal assets like your savings, car, and home should be protected from your business debt, but if you’re a sole proprietor, your personal assets can be at risk.
Create a budget that outlines your expenses and how much you have each month for paying debt. Then negotiate with your creditors to see if they’ll agree to lower monthly payments or give you an extension on the length of your loan.
Professional Help
If you’re unable to create a workable repayment plan, you might want to consider hiring a professional, like a financial planner or an attorney, to help you.
You can also contact a debt relief or debt settlement company. Debt relief companies help you avoid bankruptcy and get your credit back into good standing.
The debt relief company will speak to your creditors and negotiate a repayment plan. You’ll then deposit a set amount of money into a savings account which they then use to pay your creditors the negotiated amount until the debt is paid off. Debt relief companies usually charge about 15% to 20% of your debt as their fee.
Cut Costs Where You Can
Look at all your business expenses and see what can be reduced or even cut altogether without negatively impacting your sales. See if you have any recurring subscriptions that you can eliminate. There are subscription trackers you can use to help you find ones you may not even be aware you’re still paying.
Try streamlining your business by hiring freelancers to take over some of the tasks you may be spending time doing yourself, freeing you up for sales calls. Then sell any unnecessary assets like equipment or real estate that can give you cash to pay off part of your debt, too.
Become More Business Savvy
A thorough understanding of accounting will help you better manage your financial resources. By understanding the basic principles of accounting, you can create an effective business budget and help you make better decisions about spending and investing. Smart accounting can also help you track your finances better over time, helping you allocate your resources in a more cost-effective way.
That’s why it’s a good idea to get an accounting degree. There are many ways to use an online accounting degree. For instance, earning a degree in accounting online means you can attend classes on your own schedule. That way, it doesn’t interfere with your day-to-day operation but will still give you the knowledge you need to better understand the principles of business accounting.
Getting into debt when you’re a solo entrepreneur is understandable and, in some cases, can even be smart when you’re first starting out. It’s when debt prevents you from being able to run your business effectively or even put it in jeopardy that you need to take action.
Understanding how to better manage your finances with a business accounting degree, streamlining your work with outsourcing, and creating a debt relief budget can get you back on track and back in the black.
About the Author: As a one-on-one financial coach, Ted James has seen and helped it all. He created his site, Ted Knows Money, to share money tips and help people get complete control of their finances.
