Don’t feel bad if you didn’t make much of a dent in your business debts this year. After all, no one saw the pandemic coming. Businesses, governments, and households alike were unprepared for its impact on our finances. But now that it’s almost hopefully over, it’s time to take stock of where you are financially-wise in your business. How are you going to get out of debt fast before the impact of the economic recession pushes you over the edge?
Every business owner will tell you that the secret to surviving recessions and bad sales is good accounting practices. If you know where your money is going and how much you are earning, you’ll have a better grasp of your finances. Think of it the same way you try to pay off your personal debt. Don’t you want to pay off your mortgage lender faster than the terms you signed? To do that, didn’t you readjust your finances and make extra payments every month?
Make a New Business Budget
Your old financial strategy is not going to work anymore. Amid a pandemic, you need to realign your budget and make a new strategy to earn, save, and pay off the rest of your debts. How are you doing financially? What can you afford? What are your essential expenses? Can you reduce these expenses to the bare minimum? You should also identify how much you owe, so you can map out how long it will take you to pay it off.
Choose a Strategy to Reduce Debt
There are two basic ways to pay off your business debt. The first one is to promise not to spend on anything until you pay off all your debts. This might mean that you won’t even try to recuperate the investment you made on the business until you clear your debts.
The second one is the percentage strategy. Here, you will dedicate a percentage of your monthly sales to paying off your debts. Note that the percentage strategy is an additional payment on top of your monthly amortization amount.
Set a Timeline
Now that you have a debt-reduction strategy in place, you have to think of your timeline. When will you most likely finish paying off your debts? This is important because seeing that date draw near will keep you motivated to be stricter with your expenses. It will also keep you in the loop about how well you are managing your finances and making repayments.
Look at Debt Restructuring
Businesses that have been severely impacted by the coronavirus pandemic need to consider one more thing: debt restructuring. If you cannot make the payments on time anymore because business is that bad, then it’s worth considering the renegotiation of the terms of your debts. Reach out to a broker and start looking into the options available to you.
Financial experts cannot predict how the next months will look like for businesses. All they kept on saying is that it will be hard economic times for everyone. As early as today, prepare your business for the economic backlash that’s bound to come as the pandemic continues to batter economies.