Most of the businesses usually carry on with some amount of business debts, but to carry this on for a long time is neither advisable or desirable. There are umpteen reasons why business experts and management gurus tell you that it is not viable for any business to carry high level of debts for a long time. The continuation of the debt for a longer time would have been necessitated by a poor economy or slowing down of the economy.
Many businesses find that some level of debt is necessary for their business – either to commence their business, to keep the business running, or for business expansion. One of the main aspects of a business debt is to have it in total control and not to let it get out of control. And, it is neither viable nor advisable for any business to carry on with high debts for a long time. One of the important reasons for you to liquidate your business debts is the extremely high interest rate that it attracts, and thus taking it longer to repay the loan through higher EMIs. High debts also affect the personal life of the entrepreneur or business owner leading to stress and impacting their health.
While a business debt could be a good thing in helping you establish or expand your business, excessive borrowing could lead to serious problems. One of the important things that a business owner does not realise is that debts could eat into your revenue and keep you from expanding your business. Therefore, it would be very sensible to get rid of your business debts as fast as possible. You should remember that a higher level of debt could substantially lower the value of your business and may send away investors packing. Watch your step before you step into bankruptcy.
Before we go any further, let us take a brief look at the repercussions and the effects of high debts.
- Reduction in the quality of service
- Reduction in the quality of your product
- Losing the power of investment
- Losing the confidence of investors and stakeholders
- Running out of cash
So, how can you reduce your debts faster and in a quick manner?
In this article, we offer a few tips and strategies to reduce your business debts quickly and rapidly.
You can go about by adopting the following strategies for reducing or eliminating your debt levels.
Reduction of costs: You can reduce your costs by making a detailed study of the running of your business and pin-pointing areas where you can reduce your operating and other expenses. This would involve a complete and comprehensive study of your business that affects all your revenue expenditure. Work out all those areas where you can reduce and curtail expenses.
Increasing income: Look at ways and means of increasing your income and also look for sources of additional income. You could increase your income by increasing sales through special offers, discounts, special campaigns, special deals, and exhibitions. You can also increase your income by increasing prices. Sources of additional income would include renting out unused office space, sale or disposal of unused products, and selling any available ad space.
Infusing more capital: You can raise more capital by finding more investors or by approaching venture capitalists. It can also be done through issue of additional shares to the existent shareholders.
Sale of assets: Unnecessary assets can be sold off and the money that comes in can be used to pay off loans.
Selling/closing the business: If there is no other alternative, you can sell off the business as a going concern – you can sell of all the assets, including good will. You can use the money to clear off your liabilities and debts.
Many of the businesses need loans to carry on with their business – either for staring-up, to keep the business running, or for expansion of their business. But, to have debts for an unduly long time is not all desirable nor is it expected of any business. Any business is expected to clear off its debts at the earliest. Sometimes, it does happen that a slowing down of the economy necessitates continuation of the debt. But keeping in view your business, it would be very sensible to get rid of your business debts as fast as possible.