7 Debt Management Tips for Small Business Owners

debt management

By default, many entrepreneurs maintain a cautious approach toward debt. But it’s important to recognize that being in debt does not automatically translate to poor financial management. Loans, after all, are but a financial tool. When used strategically, borrowed money can actually facilitate growth and expansion for a business and therefore add, not subtract, to its bottom line in the long run. 

Lots of successful startups and small- and medium-sized enterprises (SMEs) in the Philippines, for example, got the ball rolling utilizing the financial products made available by their small business banking partners. The additional capital from small business loans helped them get off the ground and significantly grow their operations. 

That said, it’s a business’s responsibility to pay back what it owes according to the terms it has agreed to. Doing so promptly not only enables the company to fulfill its obligations to its online business banking providers; it also paves the way for quick approval for future loan applications. 

To make the repayment process as smooth as possible, here are some debt management tips that small business owners should make sure to practice: 

1) Create a Detailed Budget

Building a comprehensive budget tailored to your small business’s needs is essential for effective debt management. This budget should encompass all aspects of your finances, including income, fixed and variable expenses, and debt obligations. 

It should be like second nature to meticulously track the flow of the funds in and out of your business bank account, and to adjust your business spending accordingly. A Filipino entrepreneur can use their Maya Business Deposit account to review sales revenues, disbursements, and transfer history. With the capabilities afforded by your Maya Business Deposit account, you can gain clearer insight into where your money is going, which in turn will make it easier for you to allocate funds for debt repayment. 

If you operate a retail store, a review of your budget might reveal that excessive spending on inventory is affecting your ability to service your debt. In such a situation, you’ll have the knowledge to adjust your inventory purchases and free up capital, which you can then allocate to more effective debt reduction strategies.

2) Prioritize Paying for  High-Interest Debts

When managing multiple debts, it’s vital to prioritize those with the highest interest rates. High-interest debts, such as credit card balances or short-term loans, can rapidly accumulate interest charges, making them costlier over time. 

Tackle these debts first, and you’ll be able to reduce your overall expenses for paying off the interest on your loans. That also means that you’ll accelerate your journey toward debt freedom. If you’re servicing a high-interest loan while also paying off lower-interest debts, for example, allocating extra funds towards paying the high-interest debt can save you a significant amount in the long run.

3) Negotiate with Your Creditors

It’s entirely possible to negotiate with financial organizations for the benefit of your small business. Banking online loan providers understand that startups and SMEs can face financial challenges, and many are open to working out more favorable terms. 

If you’re anticipating difficulties in keeping up with your repayment terms, you can talk with your creditors about reducing interest rates or extending repayment periods, or you can even consider debt consolidation options. Try negotiating with a loan provider to extend payment terms to improve your cash flow. This, in turn, can help you get better opportunities to allocate more resources toward your debt reduction.

4) Diversify Your Revenue Streams

Diversifying your business’s revenue streams can be a strategic move to enhance its financial stability and debt management capabilities. Explore opportunities to expand your product or service offerings or tap into new markets. 

Do you run a small bakery? Consider adding catering services or offering baking classes to diversify your income sources. A diversified revenue portfolio not only boosts your overall income, but also mitigates the impact of fluctuations in a single market or product line—reducing financial strain and your reliance on debt during lean periods.

5) Monitor Your Cash Flow

Vigilantly monitoring your cash flow is crucial for maintaining control over your finances and meeting your debt obligations. Keep a close eye on accounts receivable and accounts payable to ensure that customers pay on time, plus make an effort to manage your vendor relationships effectively. 

Carry out careful analysis of cash flow from time to time as well. Such an activity may reveal that you’re consistently waiting too long for client payments, for example, and that implementing a stricter invoicing and follow-up process can help you maintain a positive cash flow and meet your debt repayment schedule.

6) Review and Refine Your Debt Strategy

Your business is not static, and your debt strategy shouldn’t be either. Regularly review and adapt your debt management approach to reflect changes in your business’s financial landscape. Assess the impact of new investments, shifts in revenue, and evolving market conditions. 

Let’s say that you have a small real estate agency. In that case, a dynamic approach to debt management might involve reassessing your financing strategy when the property market experiences fluctuations. Such a step will ensure that your debt commitments align with your business’s current financial capacity.

7) Seek Professional Guidance

When confronted with complex debt challenges, don’t hesitate to seek professional guidance. Financial advisors or debt management specialists are experts in navigating their clients’ intricate financial situations. 

If you find that your business is struggling with multiple debts, a financial advisor can help you devise a debt consolidation plan that simplifies repayments and lowers overall interest expenses. The insights and experience of a professional will prove invaluable in achieving more efficient debt management and long-term financial stability for your business.

Getting Started on the Right Foot: Choosing the Right Kind of Loan

Proper debt management begins with selecting the right type of debt—the kind that aligns with your small business’s specific needs and objectives. To determine if a loan product is a suitable fit for you, you should conduct a thorough assessment of your company’s financial requirements. This includes evaluating the purpose of the loan, the amount needed, the repayment terms, and the interest rate. 

Your good judgment will help you minimize your financial risk and choose a loan product that complements your business goals. Plus, you’ll also have an easier time finding a provider of online business banking Philippines-based entrepreneurs feel at ease working with. When all these elements fall into place, you’ll have an easier time finding a financial partner that matches your needs and that of your SME or startup—and borrowing money will be one of the most value-adding decisions you make for your business’s growth.  

Will Fastiggi
Will Fastiggi

Originally from England, Will is an Upper Primary Coordinator now living in Brazil. He is passionate about making the most of technology to enrich the education of students.

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