Is your business experiencing debt and you are looking for how to manage it? Spending business funds on personal needs is a common reason why small businesses do not survive.
Other reasons are poor management, lack of clear objectives, and bad credit management.
How To Get A Small Business Out Of Debt
Has your business fallen into debt? Do you want to pull it out of its current state and experience success shortly? You have come to the right place.
Filing for bankruptcy can be an option for small businesses in debt.
However, it comes at a high cost. Court fees alone could run into hundreds of dollars. Additionally, you suffer long-term drawbacks such as losing good credit scores and possible blacklisting by lenders.
Luckily for you, due diligence and business discipline could salvage your startup.
Delinquency and bankruptcy are never too far away from small companies that lack funds for running the business. If the proceeds are not enough to pay rent and facilitate payroll, this is a sign that things are bad. The following are debt management best practices.
They may be painstaking to implement, but it is only through sheer hard work that you will upturn fortunes again.
Revise the Priorities of Your Business
Investigate your current financial position and understand what caused the debts in the first place. Revising the budget helps you establish sources of income, fixed expenses, and variable costs.
Out of the proceeds, keep aside enough funds for settling utility bills, payroll, suppliers, and creditors.
If your business transactions are not automated, you may want to explore the capabilities of accounting software such as QuickBooks. Learn how money is coming in and out of the business coffers.
Are there loopholes for losses, theft, and fraud? Nip them in the bud.
The following are business priorities for small companies that need to be sorted out fast.
- Overheads– Rent and utility bills must be paid promptly to keep the company’s doors open. Failure to keep your end of the bargain results in a poor credit rating.
- Payroll- Failure to pay employees on time may attract penalties from employment authorities. While it affects staff morale, you could lose your best employees.
- Insurance and Business Licenses– You cannot operate without these, so pay as early in the financial year as possible.
- Secured Debts– If you run your small business alone and you have not settled secured debts, auctioneers could impound your personal assets for repossession of funds.
- Business Partners and Suppliers- Encourage goodwill with your local suppliers and partners by paying up on time.
Heighten Product Sales
Consider having offers and discounts on goods or services sold to attract passive customers. Reward loyal customers by offering an after-sale service. Use free advertising on social media to tap into the online market.
Ensure that these offers do not cause a serious dent in your revenue.
Contact debtors and have them commit to making due payments faster and sooner. If you must, enter into binding contracts to have late payments from customers penalized.
These campaigns to increase business revenue can get you off the rut faster than you imagined.
Cut Unnecessary Expenses
Small businesses and startups cannot afford to pay huge salaries and enjoy lavish yet expensive office complexes.
Instead, cut expenses that are not necessary.
For example, hire limited staff. While interviewing, seek candidates who can multitask. Avoid redundant workers, processes, and other business liabilities.
It is common for small business owners to hire their spouses and children. This saves valuable funds especially if your relatives are skilled and passionate.
Another trick is hiring interns and paying them a small stipend as they learn on the job. Downgrades such as moving to a smaller office can spare money for paying off creditors.
Strike Deals With Lenders And Creditors
Talk to current creditors and suppliers and make them understand your predicament. You might be surprised when some give you time to sort out your financials.
More importantly, know those who fall high in the priority of payments.
The cash flow statement at your small company should guide your investigation of missed payments and delinquent accounts. Ask your creditors to accept consolidated loan payment structures where cash flow is low.
Several hardship plans qualify small businesses for reduced interest rates.
Learn if you qualify for these and make the most use of them. When communicating with creditors and lenders, show them your bank account statements, balance sheets, income statements, and other financial documents.
These statements instill confidence that payments will be settled.
Obtain Help From Debt Counselors
It can be difficult getting creditors to listen to you when you have defaulted payments. There are non-profit debt counselors that specifically help owners of small businesses negotiate with creditors.
Talk to your colleagues and find debt-turnaround companies worth their salt.
They also come in handy at sniffing inefficiencies and sealing loopholes in the business model. Even if they charge for their services, you should pay a small amount with the guarantee of saving the entire enterprise from sinking.
Seek the advice of a close bankruptcy attorney if you have explored all the above options without success.
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