Statistics say that about 40% of businesses use a loan to launch and 29% of all startups fail because they literally run out of money. Paying off that initial debt takes up quite a bit of the money and is a major contributor to small business failure. That failure rate is quite disheartening as according to the Business Employee Dynamics stats about 50% of small businesses don’t make it past their fifth year.

About a half of small businesses get into debt at some point, and for many of them this is the end. However, it shouldn’t be this way. There are many ways an entrepreneur can use to get their company out of debt.

4 Steps to Getting a Small Business Out of Debt

1.    Prioritizing and ‘snowballing’ debt payments

Lack of organization, stress, and psychological tension are the main reasons why getting out of debt is so hard. Therefore, negating these factors is the first and most effective step to resolving the problem.

As to organization, one needs to compile a list of their debts and prioritize them by both size and importance. This will help plan how to pay them off most efficiently.

There’s no way to avoid stress caused by business issues. However, one can develop a more positive psychological outlook on the situation. Try the approach called ‘snowballing’. It means paying off the smallest debts first. Seeing how the number of debts diminishes will give one a positive boost that will also help reduce the stress level a bit.

2.    Analyze the business to find new ways for saving money

Even when one believes they save as much money as is possible, there might be other ways to do this. A business owner should assess every aspect of their company with a fresh look and consider how they can make their use of funds more efficient.

For example, changing web hosting might be a good way to both boost the business’ website and cut their costs. Web Hosting Media is an independent service that offers reviews of cheap hosting providers that can become a real game-changer for small companies. Another idea is to reassess the team and search for a way to outsource some of the professional services the company uses. Getting advice from trainers and even friends can help a business owner to see possible money-saving opportunities.

3.    Redesigning the budget

To get small business out of debt one needs to be ‘in tune’ with the company’s finances at all times. This means forgetting about the existing budget and creating one based on the business’s current situation.

A budget of a business in debt should have the necessary funds allocated for the foremost needs, such as rent, supplies, and utilities. The majority of the remaining funds should go towards paying off the debts (see step 1).

As a small business, cannot afford an accountant. The owner can use specialized apps, like QuickBooks or Sage 50cloud accounting software. These tools allow for accurate bookkeeping and help manage the company’s finances most efficiently.

4.    Negotiate with creditors

Negotiating with creditors is stressful and oftentimes unpleasant. However, it’s also a very effective way of managing one’s debt. Many professional lenders have specialized hardship plans or other options that will help the borrower get through a difficult time.

When using a personal loan, one can consult an attorney or a trusted expert in finance to either negotiate or develop a variety of hardship plan. In some cases, it might be best to take out a loan in order to pay off some of the more pressing debts that cannot be negotiated.

Overall, getting a small business out of debt is a gradual and complex process. However, keeping a cool head and searching for debt management opportunities can help one get through.