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Debt is a black cloud that can negatively affect our finances and prevent us from living life as freely as we may wish we could.

This is especially true for those that take the plunge into business ownership with a significant amount of debt hanging over their heads.

According to a recent study by the Startup Genome Project, 90% of startup businesses (usually those with four or less employees) launched in the U.S. fail, primarily due to self-destruction and not due to competitive pressures. Let’s face it. Debt = self-destruction.

Although the economy has been gaining considerable momentum since the dark days of the recession, there are still many business owners who are struggling in the aftermath of having taken out loans during that period to pay their bills or increase their cash flow.

With that in mind, note of the following points in order to avoid becoming a part of the overwhelmingly negative statistics of business owners closing their doors:

  1. Have the capacity to take on new debt

You’re probably aware that starting a small business can require a good deal of money to get things off the ground. At least a portion of these funds will most likely need to be borrowed, either in the form of credit cards, personal loans or business loans. If you’re already significant debt, however, whether it’s from other credit cards, student loans, it doesn’t leave a lot of room to borrow the necessary funds to start your venture. Put a pause on your plans and focus on overcoming that black cloud before doing anything else.

  1. Practice discipline when paying off old debt

Even if you eliminate a portion of your debt, it could provide the financial freedom for your business to be more successful. Eliminating debt has the added bonus of improving your credit, which can in turn make it easier for you to obtain other loans in the future. Click here to read a previous blog that provides more details about getting out of debt.

  1. Consolidate loans

Dealing with one creditor rather than several can lighten your financial burden and also save time and hassle. Do some research on a few loan consolidation companies that can help you navigate the process without tacking on additional fees, or potentially hurting your credit.

  1. Negotiate with creditors

If you owe significant amounts of money to various creditors for past services rendered, try to negotiate with them about increasing your credit line, reducing your monthly interest rates, and/or restructuring your repayment options.

  1. Create a monthly budget

Last, but certainly not least, establishing a monthly budget for your business will help you calculate exactly how much you need to operate your business on a monthly basis, while figuring out how much you can designate toward debt. Being disciplined and sticking to monthly allowances will result in less debt, and more potential for your business to grow and flourish.

Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and President of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®
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