We enter the last stage of the year, and there are many SME entrepreneurs who are facing problems due to debts with banks, suppliers and even customers for undelivered merchandise. If this is your case, and you are already working on your strategic plan for 2021, reducing the company’s liabilities should become your priority. Jorge Zuñiga Blanco, an entrepreneur and financial expert from Costa Rica, provides insight into how SMEs can prepare for the end of the year and reduce their debt at the same time.

With the blow to the economy due to the Coronavirus pandemic, and the consequent drop in consumption, the main concern of entrepreneurs is how to sell more. But to ensure the survival of your companies, it is also essential to ensure the health of your finances. Only then will it be possible to have the necessary money to maintain the operation and invest in promotion or new marketing channels.

Separate bad debt from good debt. The first thing you have to do is meet with your accountant to analyze the profile of each short, medium and long-term obligation of the company. Because not all debt is bad, and in fact, on many occasions, it is essential for expansion.

Explains Zuñiga, “If most of the indebtedness has to do with the payment of the credit card, which already accumulates months of interest and was also used to pay operating expenses, you are in trouble. The situation is very different if, on the other hand, the business is paying with a 10-year loan for a plot of land to build a distribution center, in an area with an annualized capital gain of 9%.”

Focus on your most profitable customers. To reduce debt before the end of the year, you not only need to cut expenses, but also increase your income. And the best way to do this is by directing all efforts to those customers who are already working with you, who know the quality of your products and services, who trust you, and who are surely in need of your help to reach new goals. Analyze who they are and what you can offer them in the coming weeks.

Eliminate short-term and higher-interest liabilities. After verifying what the expected revenue stream will be until the end of the year and how much you can allocate to reducing indebtedness, identify the red lights that are absorbing most of the resources. For example, it is not uncommon for many entrepreneurs to use more than five credit cards at a time and often to refinance debts between them with very high-interest rates. If this is your case, make a list of the plastics you should eliminate and how much money you need.

Change your debt profile. A smart financing plan can drive the growth of a business that cannot generate the necessary resources organically, and in a reasonable time. Although it is more difficult to access them, you do not lose anything if you find out if in your state or city there is government support for small businesses, for example zero-rate loans or with very low interest.

Improve and nurture the relationship with your current and future creditors. Once you’re already working on your debt refinancing and repayment plan, work to strengthen the communication you have with banks, credit card operators, vendors, and other sources of resources for your business. Asserts Zuñiga, “Do not see them as enemies but, on the contrary, as important allies for the growth of the company. They are also interested in you doing well, and that you are not only able to fulfill your own commitments, but that you help them achieve their own. Adopt a win-win, long-term vision.”