With any new business venture comes a unique set of challenges. Financial obligations and risk management are two of the most common hurdles that new businesses must navigate. Whether you’re launching a stand-alone company or as part of a larger organization, your business will likely require capital to get off the ground. If you’re reading this, it probably means that your operation has some debt as an obligation and aren’t cash positive yet. You aren’t alone in this regard—many startups find themselves in the same position at one point or another during their lifecycle. However, it doesn’t have to be a hindrance on your business growth and expansion. With the right strategies and mindset, you can get out of debt faster than expected so that you can focus on other aspects of business operations once again. Here are some tips to help you pay down your business debt:
Establish a repayment strategy
The first step in your debt repayment strategy is to establish a timeframe for repayment. Whether it’s 6, 12, or 24 months, knowing when you expect to have your debts paid off will help you stay on track with your repayment obligations as well as make financial commitments easier in the present. In addition, it’s helpful to figure out which debts are the most expensive and how they can be paid off first. This strategy is known as debt avalanche. The method is effective because you pay less interest over the life of the debt because you’ve minimized its length. This method is only recommended if you have enough cash flow to cover expenses and are not in financial distress.
Pay down highest interest debt first
As mentioned above, paying off debt with the highest interest rate first makes sense from a risk-reward standpoint. For example, let’s say you have two debts: $10,000 to a bank and $2,500 to a credit card company. If you pay off the credit card debt first, you’ll have eliminated the debt in about two months. However, with the bank loan, it would take about five months to pay off the entire amount. Additionally, you would also have to pay $2,500 in interest on top of the $10,000 principal. If you instead pay off the larger debt first, it would take three months to eliminate both the debt and interest. Using this strategy, you’ll have saved yourself $2,500 in interest while also paying off the loan five months sooner. This is an example of how a slightly larger debt payment can save you a significant amount of money over time.
Leverage excess cash to pay down debt
A great way to minimize the amount of interest you pay on your debt is to fully utilize your available cash flow to pay down the principal amount on your debt. However, you’ll have to be careful and make sure you have enough money in the bank to cover your immediate expenses. This means that you’ll likely have to forgo some luxuries such as extravagant travel expenses, state-of-the-art office furniture, or costly advertising campaigns. You can also choose to forgo debt repayment for a period of time as long as you have a solid plan for when and how you will catch up. However, it’s recommended that you pay down the debt as soon as you are able to do so. Often it’s wise to discuss a strategy with a reputable business debt advice service, who will undoubtedly be able to offer advice on the best way to go about settling your business debt.
Incorporate automations to accelerate growth
If you’re close to reaching your debt payment milestones but still need a bit more time to chip away at the principal amount, there’s a method you can employ to speed up the process. Use a portion of your monthly revenue to pay down your debt at a quicker pace. However, it’s important to understand that this method won’t be sustainable for very long as you’ll likely see your revenue decline over time. This is why it’s important to have a plan in place to get back on track with debt repayment as soon as possible.
Conclusion
When starting a new business venture, you’ll likely take on debt to fund the operation. However, it’s important to manage your debt wisely so that you don’t get yourself into trouble. It’s equally important to get out of debt as quickly as possible to free up cash flow and focus on growth. There are many ways you can pay down your debt quickly. From setting up automated payments to leveraging excess cash flow, there are plenty of ways to pay off debt quickly.