There are many variables that can contribute to small business debt. Factors like late paying clients, a drop in sales, and a global pandemic can all have an adverse effect on your business’ debt to income ratio. Fortunately, where there is debt, there is also a strategy to manage it, and eventually get it paid off. As a small business owner any personal debt you may have might creep its way into your business occasionally. Although it is best to keep funds separated, specifically, in times of struggle it is not uncommon for owners to use personal funds to bail out their business, or vice versa, so keeping debt under control from the start can help to prevent you from falling into too deep of a hole. If you do find yourself in a situation where you are financially treading water though there are options to help you.
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Debt Consolidation
Developing a strategy to keep your personal finances in order is a great foundation for a successful money management system within your small business. Even though the accounts are separate, the person managing them are the same, which means the habits will translate, for better or for worse. Student debt is one of the most common types of debt an individual can carry, and the total to be repaid is often significant so how you manage this is essential for financial health.
You may have heard about debt consolidation and refinancing to save money as these are both common practices. If you are thinking about consolidating your student loan debt but not sure what it entails, no problem, there are numerous resources available to help get you started. There is a guide to help you understand your options and figure out the best choice for you when it comes to student loan consolidation and what borrowers need to know. Personal debt circles back to managing small business debt in the form of strategies, lender relations, and critical thinking all being transferrable from one part of your life to another. Learning these lessons and gaining this financial knowledge from the perspective of your personal finances, and finding what works and what does not, means that you can apply those findings to your business as well.
Snowball Method
This is a popular debt reduction strategy that involves paying off money owed starting with the smallest amount and working up your way up to those that carry a larger balance. This style of debt repayment also includes a little bit of piggybacking so that once the smaller amounts are handled, you add that minimum to the total you pay towards the next bill. Traditionally this method is applied to revolving credit card debts so that is something to consider when determining if this is right for your small business.
Cost cutting is another aspect of not only the snowball method, but overall debt management. It may seem rhetorical to suggest cutting costs to decrease debt, however if you are not savvy in the areas where you make these cuts, as well as allocating the unused funds towards your accounts payable then you may find that your efforts are fruitless. The theme across this whole topic is simply awareness. Be aware of your options, your processes, and your specific needs and you will be successful in your quest to better manage your small business debt.