Facing a recession is challenging, especially when you’re managing debt. 80% of startups fail in the first five years of existence, and cash flow problems cause 82%. Why does cash flow matter so much? It’s because 68% of small businesses state poor cash flow as the top reason they fail, according to the 2022 QuickBooks report. But here’s the silver lining.
Can managing debt help your business survive a recession? Absolutely. Studies indicate that 80 per cent of entrepreneurs who are actively engaged in managing their debt when the economy is down are beginning to see improvements in their stability and even growth. So, let’s look into how to keep your business afloat and come out on top.
Tackle High-Interest Debt First
When money is tight, start by looking for high-interest loans. You will save money in the long run by paying those first. For example, you have ₹5,00,000 at 15% and ₹3,00,000 at 8%. It would make more sense to pay off the ₹5,00,000 loan first.
| Debt Type | Amount (₹) | Interest Rate | Priority |
| Business Loan | ₹5,00,000 | 15% | High |
| Personal Loan | ₹3,00,000 | 8% | Low |
By paying off the high-interest debt first, you reduce the total amount you pay over time.
Negotiate with Your Lender
Do not be afraid to ask for better terms. Most lenders will allow interest rates to be adjusted downward or the term on the loan extended if you have difficulty. For instance, if you owe ₹10,00,000 at 12%, a simple request for better terms can lower your monthly payments significantly.
| Original Terms | New Terms | Monthly EMI Reduction |
| ₹10,00,000 @ 12% | ₹10,00,000 @ 8% | ₹5,000 |
| Loan term: 3 years | Loan term: 3.5 years | ₹5,000 |
Negotiating can open up cash flow and put you back on track.
Cutting Unnecessary Costs
Tighten the belt. In a recession, every penny matters. By cutting unnecessary costs, you can save money to pay for debt. For instance, reducing marketing budgets or negotiating contracts with suppliers can free up valuable funds.
Simple Ways to Cut Costs:
- Pause the subscriptions you don’t need.
- Outsource instead of hiring full-time.
- Renegotiate vendor contracts.
These small steps may create a big difference in cash flow.
Increase Your Revenue
You have to use your revenue creatively when you’re in a tight place. Relying on just one source of revenue can be quite risky. For example, if you own a physical store, you might like to open an online store to reach larger mass. More income means more cash to pay off your debt.
| Revenue Source | Current Income (₹) | Potential Growth |
| In-store Sales | ₹6,00,000/month | – |
| Online Sales | ₹1,50,000/month | +₹2,00,000/month |
An increase in revenue means extra cash flows to pay off debt repayment.
Seek Professional Assistance
Overwhelmed? Finance with Sharan and so many more financial advisors can offer professional advice on how to handle your debt, improve cash flow, and even help find ways to improve. Sometimes, a fresh perspective is all you need to make smarter financial decisions.
Also Read :- City Union Bank Net Banking
Conclusion
Managing debt during a recession is never easy, but with the right strategies, your business will survive the storm. High-interest debt should be prioritised in payback; negotiate for better terms, cut costs, and increase revenue. And if there’s a need, don’t hesitate to seek a financial expert.
Frequently Asked Question
Q. How can I lower my debt payments during a recession?
Talk to your lender to negotiate lower interest rates or extend your loan term.
Q. How do I increase my revenue in tough times?
Try adding new income streams like online sales or services to expand your reach.
Q. Should I hire a financial advisor during a recession?
Yes, they can help you manage your finances better and find ways to reduce debt.
