It’s easy to get hooked by debt. Overly optimistic expectations about revenues may inspire entrepreneurs to take up a loan or purchase large supplies on credit. Emergencies may shoot into the fray, forcing usually prudent business owners to seek out funding from outside the safety of his venture’s coffers. Unusually poor sales could squeeze a company’s finances, prompting its decision makers to meet its obligations by creating new high-interest ones. Whatever the cause, the burden of debt is a terrible thing to have to bear over a prolonged period. If it’s heavy enough, it could crush the carrier- whether the carrier is an individual or an organization.
Unfortunately, many businesses in Nigeria (large or small) are unable to properly manage their debts; they end up getting swallowed by the credit default trap and are harried out of existence by creditors who either have them liquidated or scare their owners into hiding.
Businesses don’t have to meet their end at the hands of “insurmountable” debt. If you’re dealing with a situation of business debt, here’s what you should do to get out of it.
- Review your debt
Draw up a list of debts your business owes, starting from the longest-held ones. Experts also recommend arranging them according to the size of their interest rates, with the higher interest debts coming first (this applies to loans taken from financial institutions and other interest charging finance sources). Other criteria, such as urgency based on deadlines agreed with (or demands made by) lenders could be adopted as the basis for the ordering of listed debts. A list like this will give you a clearer picture of what you’re about to attack, so you’ll know how best to proceed. Just make sure to attend to the items at the top first- because they’re your biggest priority.
- Cut costs and delay expenses
When you’re in debt, you search for possible sources of extra cash to pay it off. Sell off office equipment or other business related material you’re not using. If yours is a one-man business or small partnership, you should consider moving from a rented office to a coworking space, or even a home office.
Put off spending on supplies, unless it’s absolutely necessary. And when you do buy, consult multiple sellers and compare prices, in order to get the least expensive option on offer.
- Increase revenue
There are a number of ways to do this, even when you’re in a credit squeeze.
Find low-cost ways of rewarding customers (such as giving them something you know they’ll appreciate when they purchase a given amount of your product). Intensify social media publicity campaigns, and aim to reach a wider audience with your posts (say, by encouraging more shares by people close to you, or through sponsored ads, if you can afford them).
Another way to increase revenue is by raising prices. This can be quite tricky, but it can be implemented successfully. Find out how in our article, How to Raise Prices Without Losing Customers.
- Pay with cash
There’s something about going cashless with payments- it causes you to get somewhat detached from the process of handing your money to someone else. It’s well known that people tend to fall into debt much faster when they get accustomed to transferring money electronically, compared to when they pay for things in hard cash. The physical contact you make with your currency notes allows you think through the process of parting with it and could restrain you from “wasting it” on things you don’t urgently need. In times of debt, this could save you from sinking further into trouble.
- Turn to family and friends
You’re probably better off seeking financial help from people you have a close relationship with. Although this amounts to closing one hole by opening up another one, you’ll be in a more comfortable position negotiating debt with people you can strike a convenient bargain with. Your family members are more likely to give you some breathing space and time to pay up than banks would.
One more thing: you’ll need discipline to successfully apply these tips. It’s just as important as all the other things listed here. If you can keep yourself in the lean focused line, you’ll have a big chance of pulling out of debt.