Lots going on this week.
The tax filing deadline is Monday, April 15th. If you’re a business owner who hasn’t filed an extension, we can do that for you. Remember, in addition to extension fees, you still have to pay what you owe Tax Day or else you’ll have to pay penalties and fees on what you owe.
ALSO note this about April 15th…
Estimated taxes for the first quarter are due.
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This week, let’s dive into business debt…and some of the pitfalls that can accompany that.
3 Debt Elimination Steps for Your Small Business
“You may encounter many defeats, but you must not be defeated.” – Maya Angelou
Business debt is prevalent in small business life. Recent data shows that 70 percent of small businesses in the US have outstanding debt.
Debt isn’t bad, per se, many businesses can manage small debt loads. However, a significant debt percentage can carry a heavy burden and that can impact financial health.
Around 38 percent owe under 100K but a concerning 62 percent owe over 100K, which can be a heavy burden for smaller companies.
So… what to do about it?
Business debt at exorbitant interest rates is obviously “the wrong kind” of debt. And getting buried under the wrong kind of debt for your business can kill your company’s long-term success and even threaten its viability.
So, what is the “wrong” kind of debt for businesses to hold?
Put these on the list of debts to avoid:
- Business loans with excessively high interest rates, balloon payments, or short repayment terms – unless a clear plan to treat it as a ‘bridge’ with an identifiable debt plan on the other side of the ‘bridge’.
- Carrying credit card debt (especially for non-essential expenses)
- Car dealership auto loans and/or leases at high interest rates.
- Personal loans with high rates (including “debt aggregation” services)
- Loans from friends or family (without clear terms)
Generally speaking, the wrong kind of debt should be thought of as any debt that is either not necessary and/or supported by business activity – or which could be refinanced on more favorable terms.
To remove bad debt from your business, here’s a clear plan:
1) Organize Your Debts: First, get a complete picture. List every outstanding loan and analyze the interest rates and repayment terms.
2) Prioritize Payoff or Refinance: Can you strategically pay off some high-interest debt without hurting your cash flow for future investments? If certain debts are too expensive, explore refinancing with a lower interest rate.
3) Show Your Strength to Lenders: If your business is profitable or has a clear path to profitability, lenders may be open to refinancing at a better rate. Present your financial health and solid business plan to show you’re a good investment.
Look at it this way: refinancing isn’t a favor to you, it’s a smart business move for them. Lenders make money on loans, and a company with a good track record like yours is a secure investment. Show them your strong financials and they might offer a loan with much better terms.
Business debt is a tool to be used wisely. Let’s make your company more profitable.
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Looking out for you,
David Tunstall, CPA