- Sonja Lunan
SMALL BUSINESSES: Dealing With Debt
In our current economic climate, one of the biggest challenges small business owners face is dealing with overhanging debt from the pandemic. The Canadian Federal of Independent Business (CFIB) found that two-thirds of Canadian businesses have had to take on debt to survive the pandemic. The good news is that there are ways to manage outstanding debt so that it is not detrimental to your business.
Create a Budget & Stick to it
The first step is to understand your business’s current financial position. Where is your money going? How can you cut costs? Explore if you can substitute supplies at lower costs. The next step is to create a budget based on your financial situation. Get in contact with your bookkeeper or accountant to help you understand your finances and budget. Consider booking a consultation to find the best ways to cut costs and structure a repayment plan. The big takeaway is to organize yourself, understand your business’s finances, create a budget plan, and stick to it.
Something else to look into is tax credits. Tax Credits can reduce the amount of taxes you pay. For sole proprietors, one tax credit available is through a registered retirement saving plan (RRSP). For example if you have a business in the trades and have hired an apprentice you could be eligible the Apprenticeship Job Creation Tax Credit. Consult with your bookkeeper/accountant to find out if your business is eligible for tax credits. This is a great way to save some cash that can be put against your business’s debt.
Get in Touch with your Creditors and Lenders
There are a few ways to reduce your interest and overall debt over time. Communicate with your creditors and/or lenders and see if it is possible to negotiate a lower interest rate. If your business is in good financial standing and you make your payments on time you might be able to negotiate to pay a lower interest rate.
Another avenue to explore is consolidating your loans. By doing this you may reduce your monthly costs, and this will not harm your credit score. For example, if you have several shorter-term loans, you could consolidate them into one long-term loan. This strategy can ease your repayment load.
Increase your Income
Increasing your business’s income may be more challenging than reducing costs but it will help to speed up the repayment process. Think about how you can diversify your product/service offering. Explore if you are reaching all the potential customers in your target market or if you can draw in more business. See if you can upsell your current customers by using incentives or bundle offers. Make sure to ask your customers for referrals to attract more business.
Be sure to get in touch with us if you have questions about managing your business’s debt or to book a consultation.