9 Debt Management Strategies for Small Business Owners

9 Debt Management Strategies for Small Business Owners

Debt is something in business that may have that inherently negative connotation for many small business owners.

After all, debt is often a large expense that has to get paid off month-after-month and can really cut into the savings and earnings of your business.

Nevertheless, managing debt (although it’s not a fun task) is a necessary evil, and is incredibly important to ensure the smooth running your small business.

Now, we’re not talking about the good kinds of debt that help you grow as a small business. That type of debt is often easier to manage because, after all, it’s a positive for your business! So generally you’ll want to manage it.

We’re talking about “bad” debt. As a small business owner, controlling your debt is critical to the success of your business.

If you are able to manage it well, then you shouldn’t have a problem; and, in fact you could probably make your debt work for you.

That’s why we compiled a list of the 9 most effective and bullet-proof debt management strategies for small businesses and small business owners.

  1. Create a plan and do your research
  2. Keep an eye on terms and rates
  3. Improve your cash flow management systems
  4. See if debt consolidation is best for your small business
  5. Evaluate your budgets and inventory your costs
  6. Negotiate with your suppliers and partners
  7. Get help!
  8. Make a debt strategy
  9. Simply generate more revenue

1) Create a debt plan and do your research

We all know that keeping an eye on debts and finances is important as a small business owner. And that’s why it’s our first tip!

Really, what we mean by creating a plan and doing your research is that you should know the finances of your business inside and out.

You should know how to read your financial plans, how to analyze them, and generally the financial position that you find yourself in.

From this baseline after you’ve done your homework, you can usually create a plan to pay off debt, consolidate debt, minimize debt, or leverage it to grow the business.

Each of these different strategies we’ll talk about later.

But when you do your homework, it’s all about fundamentally understanding where your business sits money-wise.

You need to know where your major costs and debts are, where you’re most profitable, where you need help, and where you can grow.

This foundation allows you to really employ any of the strategies and tips we’re talking about below much more effectively.

2) Evaluate your costs & budgets

Now, this may seem a little redundant after point #1, but for many small business owners, this cannot be stressed enough.

Now that you really understand the financial position and overall health of your small business, it’s time to really look at where your budgets are bleeding, and where you may have some hidden or otherwise unnecessary costs.

First, let’s look at the budgets.

It’s important to understand how your budgets break down, and if there’s any areas of the budgets that are unnecessary in your business right now.

As a small business, some of your major costs are going to marketing and outreach, salaries, and overhead expenses. So, you’re less likely to cut those.

But do you really need a massive monthly budget for food, or a recurring monthly allowance for new computers and office supplies.

The fact of the matter is, as a small business owner you’re going to have to run lean from time to time and keep those budgets a bit slimmer in non-necessary areas.

Likewise, take a look at your major costs. If there’s things you can cut back, one of the best debt management strategies (as we’ll talk about later) is to spend less and roll back your expenses.

3) Consider debt consolidation

Debt consolidation is the process of gathering up all of the difference sources of debt (whether large or small) and putting them into one central place so that you can focus your efforts on chipping that away.

Think of it as a personal line of credit, but for your small business.

Instead of having credit card debt in 3 different places, have 1 line of credit to continually pay down those cards, and then just pay down the line of credit, instead of chasing down debt in 5 different places.

When managed well, debt consolidation is a great strategy to make small business debt more manageable and help gain better control of your finances. This helps save you time, and often you can get a lower interest rate!

In addition to a line of credit, a small business loan is a great resource for small business debt consolidation.

However, it should always be noted that before you ever take on more debt, it’s important to consolidate intelligently so you don’t get in over your head!

4) Pay attention to current and future terms and interest rates

Before taking on any new debt (like lines of credit or loans), you need to know the ins-and-outs of how those loans and debts work, because taking on the wrong kind of debt will hurt you in the future.

The biggest thing that you need to take care of is making sure you look closely at terms and interest rates of any incoming debt.

Our best suggestion? Don’t get the first thing you find, shop around!

Compare different sources of financing, loans, or consolidation, compare prices and terms, and know how each of those rates will impact you in the future.

5) Improve cash flow management to anticipate payments

When we talk about cash flow management, we’re not necessarily talking about increasing cash flow itself.

Rather, we’re talking about identifying the debt and budgets that are in place in the document. It’s important to identify how you’re allocating cash and money within your small business, how you’re forecasting, and how you’re preparing for the future.

In other words, what we’re saying you should focus on is managing cash flow, and forecasting where your payments are going.

For example, if you know that you’re going to have a large outflux of cash at the end of the month or fiscal year, but you have the ability to better manage cash flow to stagger those outgoing costs, or bring in cash to help support at that time, it’s great to do that.

To summarize: keep a close eye on your cash flow forecasts, manage cash flows around payments, and make sure you manage your cash flow and know where your cash is going.

6) Negotiate with suppliers

An important piece of managing debt is managing where your money is going to… In other words, be aware and manage your payable accounts.

Negotiating with suppliers, vendors, partners, and building those better relationships can help you cut costs and allocate spending elsewhere!

Now, you may not flat out get a discount on goods and services that you receive from your partners. However, increasing payment lengths, decreasing interest rates or terms, or getting bulk or long-term discounts are all good ways to negotiate and lower your debt load.

Additionally, small business owners should be knowledgeable and be aware of other suppliers and partners in the marketplace!

Just like we mentioned for finding funding sources or loans, small businesses should always be looking to shop around! If you have a sour relationship, find one that suits you better and works for you.

7) Create a debt strategy

We’ve been talking about specific strategies for cash flow, consolidation, and other types of strategies all along, but it’s just as important to put that all together into a comprehensive debt management strategy.

It may not fix all of your problems, but it will help you get a much better insight into the debt situation of your small business, and really help you pay off debt faster.

According to most online sources, there’s two very common and very simple ways for paying off debt faster that you can follow!

  • The snowball strategy. This strategy means picking away at smaller debts first before you get rid of large sources of debt.This is a great method used if you’re looking at debt consolidation, because it helps get rid of all of the extraneous sources of debt, before you pay off something large like a business loan.
  • The avalanche strategy. This takes a different approach, and doesn’t necessarily pay off the largest debt first, but it pays off the highest interest debt first, and then looks to tackle low-interest debt down the road, saving you on much of that unwanted interest payments.

There’s ups and downs to both of these strategies, but when they’re employed effectively, they can have tremendous benefits for your small business, because they’ll help you manage debt much more effectively in the short- and long-run.

8) Bulk up your revenue (or decrease costs)

It may seem intuitive, but often times revenue doesn’t come into the equation for lots of small business owners when it comes to debt.

But, it’s incredibly important.

Long story short, if you want to decrease your debt, make more money to pay it off. It’s easier said than done, so let’s dive into it a bit more.

When your small business becomes more profitable, the focus often shifts to the top-line revenue to get that nice profit figure on the income statement. This usually means putting all your eggs in one basket that generates the most revenue.

However, this comes at the cost of not watching areas of the business that may be slowly losing money or seeing declines in their revenue.

To remedy this, break apart your small business into the various revenue-generating parts of the business, and see: what’s growing, and what’s not. Identify areas that are struggling to make money, and focus on finding ways to increase the revenue there.

This could be running temporary promotions, increasing advertisements, leveraging debt financing, or simply focusing more on supporting that side of the business to increase its cash flow.

If your business is struggling to find a healthy cash flow altogether, you really have two options.

  1. Increase revenues by running promotions, advertisements, or by getting out there and selling more, or,
  2. Decreasing your costs in certain areas of the business, like we’ve talked about before.

The latter of these two options is definitely the easier of the two, because it’s easier to lean out quickly than it is to go out and find new business.

Running promotions, cutting costs, trimming budgets, marketing more, and introducing incentives for customers are all ways to help with managing your debt by paying it off faster.

9) Seek counsel if needed

Of course, what would a small business blog be without talking about what we do!

To keep it short and sweet though, your best way to start better managing debt is to talk to the experts.

We’re experienced in debt management, and it’s something we can help you with!

So, for those small businesses and other businesses in Vancouver and B.C., reach out to us to get help on building a debt strategy!

For over 30 years, Valley Business Centre has been providing comprehensive bookkeeping, debt management, and tax services to our clients in Whistler, Squamish, the Sea to Sky Corridor and metro Vancouver B.C. areas. Valley Business Centre provides reliable and effective services to all clients.


This article is written for informational purposes only. It is current at the date of posting and changes to laws and regulation may result in the information becoming outdated. It is not intended to provide legal, tax, or financial advice. It is recommended that readers get advice from a tax professional before making any final decisions


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