This is the time of year when many small businesses make the bulk of their revenue. In fact, a third of all U.S. small businesses report that 4th quarter is their biggest earning quarter. It can be very tempting to take the additional income generated through December and tackle debt, especially this year when so many businesses incurred debt to stay open.

I want to caution you against really slamming down debt this quarter without having a plan in place to protect your business in January, February, and March, a time when many businesses have slower sales. This is particularly true for Business to Consumer sales companies. Now, to be clear, you don’t want a lot of debt hanging over your business, but before you completely pay off the Visa, do these two things first:

1. Have a Bit of Money Put Aside for Unexpected Stuff. If you haven’t created an “emergency fund” before now, consider it. Have a few months of expenses in the bank to cover anything unexpected that may arise. You may not actually need it, and then you can make decisions to use the set-aside money for debt in the future. Just make sure your monthly operations are covered, first.

2. Create Your Debt Snowball. A debt snowball is a great way to plan to pay off debt quickly, much quicker than making the minimum payments for the life of the debt. As a trained Dave Ramsey financial coach, I find his method of planning your snowball (and getting it done) to be the easiest and best. Here are the basic steps:

• Step 1: List your debts from smallest to largest amounts. Don’t worry about interest rates or payments.
• Step 2: Continue to make all of your minimum payments on all your debts except the smallest one.
• Step 3: Throw as much money as you can on the smallest debt, until it is paid off.
• Step 4:Move to attacking the next debt, adding the payment from the paid off debt to increase your monthly payment amount.

You will continue these steps until all the debt is paid, and as you go the monthly payments get bigger and bigger as each debt payment is rolled into the next one, creating the “snowball.” You should sit down and list the bills in order, the payments for each, and generally calculate the payoff dates. 

Now, you can throw extra money at the littlest one at any time. So, don’t be in a rush to tackle it if you are unprotected. I don’t want you to fear debt, just don’t plan to stay there forever. If you create your emergency fund, and sit down to define your snowball plan, you will be in great shape to get your debts paid off while you continue to operate with ease. Happy Entrepreneuring!

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