How Small Businesses Can Manage Debt

If you own a small business, you understand that you have to take on some risk. There are a number of things that can happen, including natural disaster, recession, or other events. When these incidents occur, you can be faced with obligations and even bankruptcy. Fortunately, there are some steps you can take to manage your debts.

Understand Your Financial Situation, and Then Take Action

If you are facing debts, take action as soon as you can. If you don’t pay these debts, the consequences can spell disaster, and can even cause you to lose your company. So, you must be aware of your situation and make sure you are using a small business accounting software to keep track of your profits and losses. Once you have that information, you then need to take action and take on the following priorities:

  • Payroll – You must pay your staff or face legal consequences.
  • Suppliers – You don’t want to lose your reputation with suppliers, so you have to ensure that you are making these payments a priority, too.
  • Payables – Any obligations that are due, especially those that are more than 60 days overdue, should be paid as soon as possible, as this can impact your credit score in a negative manner.
  • Bills – You also much pay bills such as utilities and rent. This keeps your company open, and also helps to keep your credit rating from falling.
  • Insurance – Insurance costs must also be paid, especially professional indemnity and public liability policies.
  • Credit Cards – The longer you pay the minimum payment, the more interest you are going to owe. So, try your best to pay these cards off as quickly as possible.

Renegotiate Loan Terms

If you have a small business loan, another thing you can do is renegotiate the terms of that loan. This helps to lower your monthly repayment costs and reduce interest payments. 

Contact Creditors

If you are still struggling with bills for your company, you can also consider contacting your creditors. Many times, you can talk to them about more favorable payment terms. Make it very clear that you have every intention of paying your bills, but right now, you need a bit of help. You also might be able to save a lot of money if you inform them that you would like to pay in full. It’s always best to stay ahead of your creditors to allow you the upper hand when it comes to negotiation. If all else fails, and you fall behind on payments, there are credit repair services that specialize in helping you rebuild your credit.

Set Revenue Goals

It makes complete sense that you can get control of what you owe by bringing more money in. Though this is a bit more difficult, it can certainly be done. Here are some ways to do it:

  • Reduce Prices – By offering discounts to customers, you can quickly improve your cash flow.
  • Meet the Needs of Your Customers – Get feedback from your customers and give them what they want. They are much more willing to buy in this scenario.
  • Get More Customers – Also, consider sharing your business plan with other professionals in exchange for new customers.

Reduce Costs

By reducing costs, you can also reduce your bills. Here are some more tips to achieve this:

  • Reduce your working space – If you have a lot of unused working space, consider reducing and take on a lower rent or lease payment.
  • Lay off your staff – Laying off staff is also an option, but keep in mind that contract employees, if needed, can be expensive.
  • Consolidate debts – You might be eligible to consolidate your payments into one payment with a lower interest rate.
  • Negotiate with suppliers – If you have a good relationship with a supplier, don’t be afraid to negotiate for a lower cost.

Use Your Smarts

The first instinct of most business owners is to cut costs immediately, but that isn’t always the best option. Instead, you want to be smart about what you do. For instance, you might think it’s a good idea to cut your marketing budget. You will save money in the short term, of course, but how are you going to get new clients? So, you want to cut where you can, but consider the consequences of every cost-cutting action.

Consider Fund-Raising

You also can consider fund-raising. This isn’t the easiest method, but it can work. For example, you might be able to borrow money from friends or family. You can also consider liquidating assets. Additionally, think about looking for a new investor. 

Bankruptcy Options for Small Businesses

As a small business, you always have the option to file Chapter 11 or Chapter 13 bankruptcy. Filing for Chapter 11 or Chapter 13 bankruptcy provide the ability for you to reorganize your debts to making it easier to manage. Chapter 7 bankruptcy liquidates your debts; however, any non-exempt property can be garnished to pay your creditor back any money owed. Your creditors cannot seize your property while you are in Chapter 11 or Chapter 13 bankruptcy as long as you continue on the path set by the Chapter 11 or Chapter 13 process. However, if you fall behind on your payments or fail to qualify for either Chapter 11 or Chapter 13, you may be forced into Chapter 7. For more information on Chapter 11 or Chapter 13, it’s always best to seek legal advice from a licensed and specialized bankruptcy attorney.

“Bankruptcy is often the only option left for some small business owners, and we can help them through the often tough to navigate bankruptcy law”, says Long Island bankruptcy attorney Adam C. Gomerman.

Be Realistic About Expectations

Finally, be realistic about what you can expect. Approximately a third of small company owners have high levels of debt, and you should do all that you can to keep your company going. With a little luck and hard work, it is possible to turn things around, but if they do not improve, you can also close the company and declare bankruptcy. Though this is probably not the ideal situation, you can always try again in the future. 

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