Is Your Small Business Struggling with Debt?

Gilbert’s Struggle and Triumph: A Small Business Debt Story

Gilbert had always dreamed of running his own business. After years of working a 9-to-5 job, he finally took the plunge and opened GilTech Solutions, a small IT consultancy firm in Nairobi. At first, everything seemed to be going well—clients were trickling in, and he was making enough money to cover his expenses.

But then came the unexpected.

A few bad months, delayed payments from clients, and rising operational costs quickly pushed Gilbert into debt. He had taken out a business loan to buy office equipment and had also relied on his business credit card to cover daily expenses. Before he knew it, he was juggling multiple loans, struggling to pay rent, and watching his cash flow dry up.

One evening, as he stared at the mounting bills on his desk, Gilbert realized he had two choices: let the debt crush his business or find a way to take control of his finances.

Step 1: Cost-Cutting Measures

The first thing Gilbert did was analyze his expenses. He realized that his large office in Westlands was eating up a significant portion of his income. After careful consideration, he decided to move the business to a smaller shared workspace where he could split the cost of rent, utilities, and internet with other entrepreneurs.

Next, he looked at his staff. He had three employees, but business was slow, and he couldn’t afford to pay them all. With a heavy heart, he let go of one employee and renegotiated salaries with the remaining two, ensuring that they could keep their jobs while the business recovered.

Additionally, Gilbert sold unused office equipment, canceled unnecessary subscriptions, and cut down on non-essential purchases like branded stationery and expensive software.

Step 2: Increasing Revenue

Realizing that cutting costs alone wasn’t enough, Gilbert needed to boost his income. Instead of waiting for clients to come to him, he became more aggressive in marketing his services.

He revamped his website and optimized it for SEO.
He engaged potential clients on social media, responding to IT-related questions and offering free advice to showcase his expertise.
He introduced a referral program, giving discounts to customers who brought in new clients.
To attract bulk clients, he offered discounts for long-term contracts, which helped bring in stable revenue.

As a result, his client base started growing, and so did his income.

Step 3: Refinancing High-Interest Debt

One of Gilbert’s biggest financial burdens was his M-Shwari loan, which had recently increased its interest rates. After some research, he found a microfinance institution offering lower-interest business loans. He applied for a new loan to consolidate his high-interest debts into one manageable repayment plan.

He also transferred his business credit card balance to a different provider that offered a lower interest rate and better terms. These steps significantly reduced the amount of money he was losing to interest payments.

Step 4: Revisiting the Budget

Gilbert took a hard look at his budgeting practices. He realized he had been spending money without a clear plan, often making impulsive business decisions. With the help of a financial advisor, he created a structured budget that focused on essential expenses, debt repayment, and business growth.

Step 5: Shortening Customer Payment Terms

One of the biggest reasons Gilbert had fallen into debt was delayed client payments. Some customers would take months to settle their invoices, which put a strain on his cash flow.

To fix this, he:

Reduced the payment period for his services from 60 days to 30 days.
Offered small discounts to clients who paid upfront or within the first two weeks.
Introduced payment milestones for long-term projects instead of waiting until the end of the contract to receive full payment.

Step 6: Handling Creditors Smartly

Instead of avoiding his creditors, Gilbert reached out to them and explained his situation. He negotiated new payment terms, ensuring he could repay his debts without suffocating his business.

He also created a debt inventory, listing all his outstanding debts, their interest rates, and due dates. This helped him prioritize repayments, focusing on clearing high-interest debts first.

Gilbert’s Comeback

With these strategies in place, Gilbert started seeing results. His cash flow improved, debts were gradually being cleared, and his business was no longer at the brink of collapse. Within a year, he had cleared 70% of his debts and was back on a path of steady growth.

His journey taught him that debt wasn’t the problem—it was how he managed it that made the difference. Now, Gilbert runs a successful IT consultancy firm, and whenever he takes on debt, he does so strategically, ensuring it serves the business instead of sinking it.

If you’re in a similar situation, remember: Debt doesn’t have to kill your business. With the right strategies, you can turn things around—just like Gilbert did.

Join our whatsapp Community, Click here

If you run a small business that is constantly burdened by debt, you are not alone. Even the most skilled entrepreneurs have found themselves in a similar situation, often due to unforeseen circumstances such as natural disasters or economic downturns like pandemics. At times, the pressure of mounting debt can make it tempting to avoid borrowing altogether.

However, debt in itself is not necessarily a bad thing—it is often a necessary part of running a business. The key lies in how you manage it. Proper debt management can determine whether a business thrives or collapses under financial strain.

As an entrepreneur, it is essential to develop skills to effectively handle debt and protect your business from financial distress. If your business is experiencing a buildup of debt that is affecting cash flow, it may be time to implement a management plan. Below are several strategies you can use to control or eliminate your business debt:

1. Recognize That Your Situation Is Unique

Every business operates differently, and debt management strategies that work for one business may not necessarily work for another. It is crucial to evaluate your specific financial situation before deciding on the best course of action.

2. Reduce Costs Wherever Possible

One of the most effective ways to free up cash for debt repayment is by cutting unnecessary expenses. Here are some cost-cutting measures you can implement:

Share resources with other businesses: Consider sharing office space, transportation, or even internet services with other businesses to reduce costs.
Downsize operations: If possible, reduce the number of employees, move to a smaller office, or operate from a home office to lower overhead expenses.
Eliminate unnecessary business supplies: Sell off any equipment or inventory that is not in use rather than letting it sit idle.

3. Increase Sales and Revenue

Boosting revenue is another crucial step in managing business debt. Consider the following strategies:

Adjust pricing strategically: Raising prices may seem risky, but if done correctly—such as offering discounts on bulk purchases—it can help maintain customer loyalty while increasing revenue.
Engage customers on social media: Actively responding to customer inquiries and concerns on social platforms can enhance trust and lead to increased sales.
Encourage positive reviews: Satisfied customers leaving positive feedback online can help attract more buyers and build credibility.
Reward loyal customers: Offering incentives, discounts, or exclusive deals to repeat customers can improve satisfaction and encourage referrals, which can further boost sales.

4. Refinance High-Interest Debt

Monitoring your loan interest rates is essential, as high-cost debt can quickly drain your business finances. If you notice that the interest rates on your existing loans have increased, consider refinancing options:

Compare lending options: For example, if you have a loan with M-Shwari or any other lender that recently increased rates, explore alternative loan providers that offer better terms.
Consolidate business credit card debt: Transferring your credit card balance to a new card with lower interest rates can help reduce financial strain and simplify payments.

5. Reassess and Adjust Your Budget

Revisiting your budget can help identify financial inefficiencies and ensure that you are allocating resources effectively.

Evaluate whether you are sticking to your budget: If not, analyze what is causing the deviations and make necessary adjustments.
Seek professional advice: Consulting financial experts can help you avoid repeated budgeting mistakes and provide better financial insights for your business.

6. Shorten Customer Payment Terms

Many businesses extend credit to customers, allowing them to pay for goods or services at a later date, sometimes after one, two, or even three months. However, long payment cycles can create cash flow problems.

Reduce payment durations: Negotiate shorter payment terms with customers to ensure a steady cash inflow.
Offer incentives for early payments: Discounts or rewards for prompt payments can encourage customers to settle their accounts sooner.

7. Develop a Good Relationship with Creditors

Lenders and creditors are not out to ruin your business, but poor communication can lead to misunderstandings and additional financial stress.

Be honest about your financial situation: Transparency with lenders can help you negotiate better repayment terms or explore options such as loan consolidation.
Negotiate flexible repayment plans: Some creditors may allow for adjusted payment schedules to ease financial strain.

8. Create a Debt Inventory

A clear picture of your outstanding debts will help you create a structured repayment plan.

List all debts: Include details such as the lender, amount owed, interest rates, and payment deadlines.
Include all credit sources: Document every line of credit used, including business loans, credit card debts, and supplier credits.
Prioritize debts strategically: Use a spreadsheet to categorize debts based on interest rates and payment obligations, allowing you to focus on clearing high-cost debts first.

By implementing these strategies, you can regain control over your business finances and work toward a debt-free future. Remember, proactive debt management is key to maintaining a stable and profitable business.

Join our whatsapp Community, Click here