Starting a business or a freelance career doesn’t come without its costs. Whatever business you’re in, there are capital costs like equipment, space, inventory, software, and electronics. There’s your start-up period when you’re leaning on personal savings or credit cards to get by while you build your client base and get things going. You can wind up having to put up personal collateral for a business loan, and there will always be business and personal expenses that wind up on plastic.
Once business gets rolling, that debt can hang around your neck and feel like it’s pulling you down. These five steps should help you pay off debt faster, so you can focus on growing your business.
#1 Consolidate High-Interest Debts
Credit cards can be your life-saver in a pinch, especially when you’re running a new business. There are going to be weeks that you don’t have enough to pay for business or personal expenses, and that’s when you reach for your cards.
Living on debt or using personal credit for business expenses is part of that entrepreneurial life, but it can feel overwhelming in no time.
One way to get out of debt on personal credit cards faster is to consolidate high-interest credit card balances and reduce the interest rates. A Debt Consolidation Program is a great way to consolidate debt without having to take out another loan. What you do is get in touch with a certified Credit Counselor with a non-profit credit counseling agency like Credit Canada, and they will help you negotiate lower interest rates with your creditors and simplify your repayment plan.
#2 Increase Revenues
When was the last time you raised your prices? Sometimes the best way out of debt is increasing how much you make, and if you own your own business, higher prices are one way to do it.
Many entrepreneurs are reluctant to increase their revenues by raising their prices. They don’t want to scare clients away by raising their prices too high. Implement the right strategy to keep your clients, such as providing volume discounts, charging per project rather than per hour, or start by introducing higher prices for new clients only.
You can also implement other ways to boost sales, such as customer loyalty programs and becoming more active on social media to promote your business.
#3 Make Sure You Collect from Clients
Dealing with late-paying clients is never fun. How do you balance your insistence that you get paid with the professionalism and politeness you need to make sure you keep that client? How you approach late-paying clients depends on the situation.
In some situations, you may just want to shorten payment terms with clients. Shifting from 90-day payment terms to 60-day payment terms can help your cash flow and make sure you’re getting the revenue you need to pay off immediate expenses.
Things can be trickier when clients consistently pay late or you have invoices that are long outstanding. This is what you should do to collect from delinquent clients:
- Develop a system for following up at regular intervals, i.e., after three days, one week, 15 days, 30 days, and 45 days, that you can use for all clients.
- Initiate contact by sending a reminder letter.
- Progress to making phone calls, which are harder to ignore.
- Keep things professional and polite rather than getting angry; treat your clients the way you would want to be treated if you were overdue for payments.
- Consider offering an installment plan or collecting partial payment if you can’t afford to wait.
- Hire a collection agency if nothing else works.
#4 Prioritize Your Debt Payments
Not only should you be doing what you can to reduce expenses and raise revenues, but you should also be prioritizing your debts to more effectively manage them. When it comes to personal debts, you should pay off balances with the highest interest rates first.
But when it comes to business, there may be other factors to consider. You may want to prioritize debts with key business partners, such as overdue bills for key suppliers or keeping up with payroll or paying subcontractors. It may not cost you interest to delay those payments, but delaying can damage your reputation.
#5 Review Your Budget
If your business doesn’t have a budget, now’s the time to make one. If you’re struggling to get out of debt and you do have one, now may be the time to revisit your budget and make some important adjustments.
Start by reviewing your bank and credit card statements from the past few months, or even better, the last year. This should give you a real idea of your revenues and expenses. The more information you have, the better. Once you’ve been in business long enough, you can even predict seasonal trends and adjust your cash flow appropriately.
Getting out of debt as an entrepreneur is the next step in business success. It’s common to rely on credit to get going, but once you pay off your start-up costs, you can focus on taking your business to the next level.