4 Actionable Steps to Manage Your Small Business Debt

If you’re bogged down with excessive debt, you’ve got options: You could sell your business, liquidate your assets, or file for bankruptcy. None of those sound appealing? Then it’s time to buckle down and take steps to manage your small business debt.  

Before we begin, please know that having debt is no reason for guilt or shame. In fact, you’re in the majority! The average small business owner holds $195,000 of debt. Heck, the average college graduate holds $30,000 in debt. The average American? $92,727 of consumer debt. 

With such a universal problem, you can rest assured that there are plenty of resources and solutions to keep you from feeling financially crushed. So buckle up, square those shoulders, and get ready for action! Here are the four most important steps we’d recommend to start managing your small business debt. 

1. Protect yourself. 

If your business gets sued, do you have insurance? If it goes bankrupt, are your personal assets protected? Do you have enough money to feed your family? 

If you answered no to any of these questions, it’s time to take a step back. We can attack your debt once we’ve covered the basics…namely, making sure your small business dreams don’t end up ruining your life. (Harsh, we know! But this stuff is important.) 

• Insurance: Never go without coverage. Just don’t do it. Be sure to take your time when finding liability services and insurance for your small business. You’ll be footing the bill if you don’t have enough coverage for liability claims, so you may want to consult with an insurance broker to make sure you’re purchasing the best policy. 

• Personal protection: If you have an LLC, C, or S corporation and your business goes bankrupt, you have a “corporate veil” of protection and are not held personally liable for any debt. An LLC is the simplest to set up and maintain. 

• Take care of yourself: You’ve got to feed yourself and/or your family and you shouldn’t ever work for free. If you’re running yourself into the ground to keep your business afloat, you’re not going to have long-term success. We wish it wasn’t so, but passion doesn’t pay the bills! Taking care of basic human needs always comes before paying down debt. 

2. Rework your budget. 

Congratulations! If you’ve made it to this step, you’ve done the work necessary to prevent disaster and make yourself comfortable. It’s now time to assess and rework your budget. 

If you don’t have a budget just yet, it’s imperative that you create one. In doing so, you’ll be able to achieve a more comprehensive understanding of your current financial situation. Start by reviewing your most recent bank and credit card statements to identify patterns and trends. 

To simplify things for yourself, you might choose to begin budgeting with apps like Mint or QuickBooks Online. And while it’s totally possible to DIY it all, we do recommend seeking out professional accounting guidance when writing or adjusting your budget. 

In addition to helping you rework your budget, an experienced CPA will look at the big picture of your financial wellbeing. (Absolutely vital when working your way out of debt!) They might offer their expertise to: 

• Point out potential issues or opportunities for growth
• Keep an eye on any gains or losses
• Prepare reports in the event of an audit
• Help you apply for financing 

All good stuff. And with their access to the latest accounting software, you won’t be missing out on financial projections. If you’re not missing out on financial projections, you won’t be setting your budget with incomplete data…and wasting your valuable time! 

3. Examine those interest rates. 

Believe it or not, there’s a good chance that your interest rates are unnecessarily high. If you’ve got debt on multiple credit cards, try transferring those balances to a credit card with a lower interest rate. You’ll likely be able to get a 0% introductory APR, which is a great opportunity to attack that principal amount. 

If you’ve made on-time payments on your bank loans, you may be able to reach out to your loan manager to negotiate a lower rate. Consolidating your loans is another excellent strategy to reduce monthly payments and work with a steadier interest rate. 

Can’t consolidate your loans? Use the stack method. It requires more diligence and planning, but it’ll still help you greatly reduce your debt. Make a list of all your minimum monthly payments. If you’ve got leftover cash after paying your minimums, put all of that towards your loan with the highest interest rate. 

Don’t be putting that extra money on random loans all willy-nilly! Once that loan is completely paid off, then move to the loan with the second highest rate, and so on. This stack method will help your dollars do the most damage on that debt.           

4. Hire professional help. 

It may seem counterintuitive to pay a professional to help you with debt repayment…after all, shouldn’t you be looking to save money? Here’s the thing, though: hiring a team of reputable financial experts will help you to cut costs in the long run. If you want longevity for your business, meet with an accountant. 

Unless you’re also a CPA, taking care of your accounting needs can be frustrating and expensive, to say the least. And to say the most? You could inadvertently be derailing your path to debt freedom. 

Reach out to KYN today to connect with a team that’s empathetic, trustworthy, and committed to your long-term financial growth. We love nothing more than seeing our clients reach their goals. When you’re ready to get started on yours, we’ll be here!