It is common to start with borrowed money but getting deep into debt is a situation no business would want to be in. At every stage, the business would need cash to expand and lenders would be willing to extend a loan if it has grown well all along. However, a company can get into trouble if it finds itself unable to pay off the debt due to a wrong decision, market conditions or any unfavorable conditions.Â
Business debt can put the company at risk and make every day a challenge. If you find your business in this unfortunate situation you would want some ideas and tips on how to get out of business debt and into the black again. Here are some measures you can adopt to manage your debt efficiently.
1. Reduce Expenses
Typically a business runs into debt from one or a few expense heads so if you identify those and reduce or eliminate them, you have made the first step to stop the leak and get rid of the source. These could be the expenses that do not bring a commensurate income or those that do not add value in any way in the existing situation. If the expenses are too high you could think of shutting down unnecessary expenses such as office space or expensive phone systems.
2. Pinch every Penny
You can earn some much-needed cash by sub-letting any spare office space you may have. Selling old or unused equipment could free up space and earn extra cash. On the other hand, if the money that isn’t coming in the way it should, the day it should you may want to focus on the collections efforts.
3. Analyze your Budget
In a situation of mounting debts, you might need to take a fresh look at the budget based on the current situation by using budgeting apps. They help you match your revenues with fixed monthly costs like rent and utility bills and set aside some more for unavoidable variable costs. As a business owner, you may want to keep the operation running but devote much of the remaining funds to paying off debts. Accounting software can help you plan your budget, expenses, and debts.
4. Make Debt Payoff a Priority
The debt with the highest interest rate should be tackled first since the interest and the principal are blazing away like wildfire every month. Equally important is the business debt that has come about with a guarantee on your personal assets since the business owner is the most important asset in the business.
5. Approach the creditors
You can consider approaching your creditors and apprise them of the financial situation you're in and seek a renegotiation on the payment terms, a redrawn payment plan or a reduced settlement amount. Once they agree to one or more of these, you would need to make sure that you fulfill the fresh terms.
6. Loan Packages and Consolidation
One option that you can think of is to consolidate your loans into one payment or several shorter-term loans into one long-term package. This would reduce the monthly costs without much hassle. You can also renegotiate the interest rate on the business loan if it is higher than the current rates. A loan refinancing can also help to reduce your payments. You can also seek small business loans to tide over problems related to the immediate cash flow to businesses.
7. Suppliers and Partners
You can also try to negotiate with your suppliers, especially if you have long-term business relationships with suppliers. You can try negotiating a discount or different payment terms with your suppliers mainly those that deal with bulk orders. Your business relationship and payment history can stand you in good stead. Working together with other similar small businesses can help you negotiate lower prices if you can collectively submit larger orders.
8. Clients and Debtors
You might need to bring in a debt collection agency for collecting accounts receivables from clients that do not pay on time, refuse or can’t afford to pay. You can also work with your business partners to revisit the business terms and also step up the business development efforts to increase orders. If they are overseas, consider using a bank wire to collect payment or look into the different international money transfer services.
9. Layoffs and Redundancies
This is a tough option, especially for a small organization since it affects the company’s productivity, goodwill, and the workplace environment. A temporary revision of salary or employment terms could be softer options but if all else fails, this might be an option too.
10. Expert Help
It can be tough to work with creditors and you might need to seek help from credit counseling organizations if creditors are unwilling to co-operate. These non-profit organizations offer debt-management help for small businesses. Alternatively, a professional debt-management company can put the business on track by identifying inefficiencies and working out better payment terms with creditors. However, if the issue is beyond these efforts a bankruptcy attorney's advice can be worth a try.
Any business goes through good and bad times but it is the strength to pull through that helps it to live and fight another day. The options listed above are some of the possibilities but the best advice would come from the people in it, the accountants and business experts. Stay strong.
