5 Phases To Paying Off Business Debt

You've tried to pay off debt in the past but failed. You want to get out of debt but it feels too big a mountain to climb.

In this episode, I am sharing the 5 phases every business owner will experience on their journey to becoming debt free. 

Understanding these 5 phases will not only help you actually pay off the debt, but do it faster while growing your business.

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Running a business with date hanging over your head can be very stressful. Today we are breaking down why you may have failed at paying down debt in the past, why it feels like this deep hole that you cannot seem to get yourself out of, and how to finally stick to it this time around and even make the entire process a lot less miserable. I have coached many of my private clients through the process of paying off debt, and there are distinct phases we all go through when it comes to clearing debt specifically. Now each phase comes with its own distinct emotional experience, decisions we need to make, and specific actions we need to take so that we can get to the next phase. Understanding what you are going through and how your brain might react in each phase is super helpful because once you know, you'll know that what you're feeling and thinking is completely normal and that you are actually right on track to getting on the other side of this. So let's dive into the five phases of paying off business date. The first phase is what I call the spiral. And this is the phase where you are actually getting yourself deeper into debt. Now, this phase very rarely starts with one dramatic event. It usually starts small and quietly. First, it's the single credit card for business expenses, then an overdraft facility. A quiet month comes along, so you use credit to cover operational costs like payroll or supplier invoices. And when business picks up, you may even pay down some of it. But as revenue dips, the balance creeps back up again. And before you know it, you're looking at date consolidation options. Now, because the spiral happens gradually, many owners often tell me that they have no idea how it got so bad so quickly. And the answer is simple. It's because getting into debt is quite easy. Now, when I help my clients with their date payoff plan, we look at the things that triggered the date. And in most cases, owners have taken on debt as a means to either keep the lights on or to take advantage of a growth opportunity. Now the challenge is that in both cases, emotions are high. And even though debt is an option, it's not the only option. But because we're in this reactive state, we don't actually allow ourselves to pause and really run the numbers and come up with a plan to pay back the debt. Then make sure that if we are using it as leverage to grow, that we actually have a plan to get a return on the money that we're investing. The biggest pattern I see in this phase is that business owners reach for debt as a quick fix without a real plan. And in order for us to actually get out of date, we need to make a decision in this phase to not take on any new debt, to slow down and problem solve for the lack of cash. We need to look at why we think we need debt. If we have cash flow challenges, taking on more debt might solve the problem in the short term, but we need to understand why cash flow is not where it needs to be. The same goes for using debt as a means to grow. We need to stop and ask ourselves, what would we do if debt was not an option? The second phase is hitting rock bottom. Now, owners can hit rock bottom in one of two ways. Either because they have recognized that they are spiraling and they don't want things to get worse, or they have hit rock bottom because every line of credit is maxed out. They cannot get more debt even if they wanted to. Now, usually it's a bit of both happening at the same time. Regardless of how you get to rock bottom, this is where you actually make the decision to not just stop taking on date, but to get out of date because you are over the pressure, over seeing all of your hard-earned money going into date repayments with interest rates enough to make you nauseous. You are done with it all. This phase is often filled with a mix of emotions, a determination to clear the date, but also confusion, frustration, maybe even feelings of hopelessness when you look at how much you need to pay back. Now, when my clients are in this phase, the first thing we do is we get all of the information, all of the facts on the table so that we can create a debt payoff plan. We list out all of their debts, how much is owed, as well as the minimum monthly payments. Once we have all of the information, we know what we are really working with. And it's now time to move on to the next phase, which is the reset. Now, this phase is a fun phase because we are taking a lot of action and creating a lot of forward momentum. And my clients often feel a lot of relief and hopefulness during this phase because they are actively taking control over their finances. And this can be very empowering and even liberating, especially if you have felt like money has been chaotic for a very long time. Now, what we do during this phase is a complete deep dive into your numbers. We look at your revenue, which offers are making you the most money, we look at your profitability, and we evaluate your current pricing structure. We also look at all of your expenses and make sure that each one is necessary and brings a return on investment. When we have all of the important figures on the table, it's easy to spot and plug the cash leaks. This is also where we determine exactly how much money your business needs in savings so that you don't need to reach for debt in the future or anytime there is an emergency or a slow month. Now, during this phase, we create a system for building up your business savings while also starting to pay off the debt. So every rand or dollar that comes into your account has a purpose. The next phase is called the plateau. Now, the plateau feels like that long stretch of road, never-ending road, on your way to your favorite vacation spot. It stretches to the horizon in every direction and it is quite boring. There isn't much to see or do. This is the stretch where you are just chipping away at the date. You are following the system we created in the previous phase, and it's easy to look at your outstanding balances and feel like this is going to go on forever. There is nothing to do other than sticking to the plan. Now, when we've hit the plateau, we are actually at a fork in the road because we could decide to simply continue with the plan, continue making payments until the date is cleared, which may take 12 months, it may take five years, depending on how much date you have and how much money is available to throw at it. Or we can intentionally decide to enter into the next phase, which is the surge. And this is where you decide to pay off the date more aggressively. This is also actually an advantage business owners have because we have control over our income. We could decide to increase revenue and pay off the debt faster. This isn't an option for someone who is employed full-time unless they decide to get a second job, which isn't always realistic. So they have to work with their salary, which is capped for the most part, right? So in this phase, we look for strategic ways to increase income without increasing expenses. And we ramp up the debt repayment so we can knock it out faster. There is actually also a sixth phase, a sixth phase, after you reach zero, after you've paid off all your debt. You will now have all this money available that no longer needs to go towards debt repayment. So the sixth phase is giving the surplus funds a new job. This money could be used to fund growth, to build up the cash reserves even more, or to build wealth outside your business faster. The important thing is that you have to decide how you are going to steward the money in the best possible way to strengthen the business's financial position as well as yours even more. So that's it. That's the five, well, six phases of paying off debt as a business owner. Now, if you are in debt, let me know what phase you are in. I would love to know and support you in moving towards being debt free. And if you're interested in working with me as your coach, where we will organize your business for more profit, free time, and less stress, head over to the link in the show notes to apply for my 12 month private coaching program, The Wealthy Owner. I'll see you next week.