According to the Small Business Administration (SBA), money issues are one of the core reasons why many small businesses don’t succeed. Business owners who don’t manage their credit wisely or who don’t have adequate capital are much more likely to run into trouble. When a company reaches the point that it is struggling to cover necessities like payroll and rent, bankruptcy usually isn’t far behind.
In 2005, the Bankruptcy Abuse and Prevention Consumer Protection Act went into effect. This act added additional hurdles that small businesses have to overcome before they are able to discharge company debts by filing for Chapter 7 bankruptcy.
One of the best ways to ensure that your company’s finances stay in good shape is by getting a handle on your business debt. There are a number of techniques that you can use to reduce your debt ranging from getting rid of unnecessary expenses to restructuring your existing debt. Here are some of the top strategies that you can use:
1. Reevaluate Your Company’s Budget
Until you have control of your company’s finances, you won’t be able to give your outstanding debt the attention that it deserves. After all, when you are struggling to keep up with your basic necessities each month, it is impossible to come up with extra money to make a dent in your business debt.
One way to overcome this problem is by reevaluating your budget. A good budget should not only list your sources of income but it should also address your ongoing costs. Additionally, it should take into account expenses that fluctuate on a monthly basis. Once you get in the habit of budgeting, it is far easier to stay on top of necessary expenses like rent and payroll, helping to ensure that you don’t wind up making the problem worse.
If you are struggling with your company’s finances, don’t be afraid to ask for help. Whether you talk to your accountant or work with a free service such as SCORE, you can learn a lot by seeking advice from knowledgeable people. You should also consider investing in budgeting software to make it easier to create and stick with a budget. Throughout the month, be sure to crunch the numbers to see how you are doing. Staying on track with your budget will make it far easier for you to come up with a feasible plan for reducing your business debt.
2. Cut Back On Your Expenses
Minimizing your ongoing expenses as much as possible will free up more money, giving you the resources you need to start paying down your debt. Evaluate all of your current expenses to determine which ones are necessities and which ones could be eliminated.
Start by looking at monthly subscriptions, membership fees, or other ongoing expenses. Are you getting enough out of these services to justify paying for them? Oftentimes, eliminating outdated subscriptions or canceling certain memberships will give you enough wiggle room in your budget to begin making a serious dent in your debt.
You can also look for larger ways to save. For instance, evaluate the current space that you are leasing. Could you get by with a smaller space? Could you move to a less desirable location in order to cut the cost of rent? What about negotiating with your landlord? Do you think you could get a lower price if you agreed to pay for several months in advance?
The easiest way to identify ongoing expenses is by looking at your company’s financial statements. Eliminating unnecessary expenses is one of the most effective ways to increase your cash flow, freeing up additional money that you can apply to your debt.
3. Make More Sales
Another way to increase your company’s cash flow is by increasing your sales. Consider ways that you could entice people to spend more money with your business. For instance, if you have customers who come back over and over again, try implementing a loyalty discount or providing them with other perks to encourage them to buy more.
4. Don’t Stick Your Head In The Sand
It is only natural to want to hide from your creditors if you find yourself unable to make your payments. Sticking your head in the sand and pretending that the problem doesn’t exist will only wind up making things worse, however.
The minute that you realize there is a problem, reach out to your creditors and discuss your situation. Before you contact your creditors, however, sit down and figure out how much money you have available to pay toward your debt. That way, you can let each of your creditors know exactly how much you can afford to send them. Oftentimes, they will be willing to negotiate with you rather than having you file for bankruptcy.
In extreme cases, you may even want to consider looking into loan consolidation options or exploring hardship plans. These options can provide you with more time to pay while at the same time lowering the amount of interest that you owe. Creditors may be willing to work with you if you provide them with a letter outlining any hardships that your company is facing. You may also have to provide them with the following financial documentation:
* Tax returns for both the current year and prior years.
* Recent statements from your bank.
* Copies of your balance sheet or other financial documents.
There are a lot of different templates online that you can use to craft a well-written letter outlining your company’s financial hardship.
5. Restructure Your Debt
There are companies out there that work with businesses to help them restructure their debt. You should exhaust all of your other options before working with one of these companies. If you have tried everything else, however, you may want to consider hiring these professionals to help you negotiate better terms for your accounts. In most cases, you will need to sign a contract that provides details on the relationship between you and the company that is restructuring your debt. You also typically will have to allow the payments to be automatically withdrawn from your bank account.
These services almost always come with an additional monthly fee, although the fee is usually negligible. Debt restructuring can provide some of the following advantages:
* More time to pay off your debt
* Lower monthly payments
* Fewer legal bills
* Freedom from having to deal with collection agencies or creditors
* An improvement in your company’s credit profile over time
Make sure to choose the company that you work with wisely. They should take into account your current financial situation when negotiating with your creditors. That way, they can come up with a payment plan that you can actually afford. They can also help ease any fears that your creditors may have about your ability to pay them back.