Crippling debt is not only specific to individuals. Businesses can fall under their own debt and can become unable to function and be profitable. Most frequently than not, small businesses are more likely to be overwhelmed by debt, due to a series of reasons. The lack of liquidity and the need to access more types of debt are two of the most common reasons why small businesses take out more loans than bigger establishments. In this case, you might want to consider debt consolidation. However, bankruptcy is the most frequent and feared outcome. The tips and tricks below will help you save your business from bankruptcy and handle debt easier.
Revise Your Budget
To see why your business ended up with crippling debt, take a closer look at your budget. You will see pits that just don’t work out as expected.
You may be operating on an older budget, created at times when your business was more profitable, or the market was completely different. If this is your situation, work with your accountant and design a new budget, more suitable for the current income and profits.
Eliminate Unnecessary Expenses
If you notice your monthly expenses, including bills and supplier expenses, eat up more than half of your business profits, you should know you’re in trouble. This may be the perfect time to start cutting costs and expenses. Start with those expenses that are not urgent for your business. For instance, if you are in retail and tend to overstock your shop, consider cutting the stocking expenses until you generate some cash from the products you already have on your shelves. Also, take a look at your monthly bills and see what services you can give up to save some money until the situation becomes more stable.
If you notice you fall behind with your payments and keep accumulating debt because of bad payers, stop supplying products or services to them. The next step on your list is hiring some professionals who can help you get your money back from bad payers. Also, take a look at your business location. Are you renting an unreasonably big space for the needs of your business? See if you can run your business form a more affordable location until you pay back some of the debt you owe. In many cases, businesses see themselves forced to cut back on employees. Although is far from being ideal, you can also reduce your employee number to save your business.
Hire A Professional Financial Advisor
Your accountant might offer valuable pieces of advice in terms of savings, and they might be able to outline a new budget with real potential. But to be sure you have a sturdy action plan to get you out of debt, a professional financial advisor is a valuable investment.
Alternatively, depending on your area, you might be able to find fee-free counseling services, for small and medium enterprises. Someone who is training to become a financial advisor might help you at a discounted rate. However, if your debt issues are more complicated, specialists advise hiring a pro who can look closely at your situation.
While at first glance this will look like an extra expense for your business, the outcome will pay back shortly. A financial advisor will not only redesign your budget, but they will also represent you in face of your creditor when negotiations will be necessary. A professional who can offer more insights into your business, its’ needs, and who can offer several strategies you can follow, is a valuable asset for your business.
Pay With Cash When You Can
For a while, try to pay your bills and monthly expenses with cash. As soon as you make some profits, instead of depositing those into your bank account, consider paying your bills with it. This will somewhat force you to cut expenses and to limit yourself to only those amounts you have.
Otherwise, you will keep paying with your business credit card and this will only deepen the debt you find yourself in. Be mindful of how much cash you put into your monthly expenses, however. You want to save some to pay off part of your debt as well.
When struggling with debt, the best way to manage your money is through prioritizing. Ensure that you first pay off those bills and expenses which are long overdue. Identify if you need help paying bills but before anything else, you should emphasize paying off some of your monthly debt payments, if you are behind those.
In case of crippling business debt, the money you owe to the bank should be the first to plan for. Your debt is now the only most important priority you have, as a business owner.
Consider Debt Consolidation
Debt consolidation is one of the most effective ways to manage business debt, according to the specialists at OnDeck. Most lenders are aware that businesses can go through financial hardship and they are ready to come to their help with solutions tailored to their needs.
Most frequently than not, lending institutions can change the payment terms and maybe even offer your establishment a new payment schedule. This is in both your and your lender’s advantage, so this should work out better than you anticipate.
Re-evaluate Your Revenue Streams
To grow your business effective, ensure that you look into new income streams. It may be a new line of products; you could try to adjust your prices so your products become more tempting for the market you activate in, and so on.
Beware, all changes that you bring in this regard should be based on thorough market research tools. See what the market demands are, see if you have the necessary capabilities to meet those, and maybe you can develop a new strategy to supplement your income streams. With the extra profits your business makes, try to pay off some of the debt you owe.
These debt management tips and tricks can become incredibly useful in times of hardship. When you start noticing your business is overwhelmed by debt, taking fast action can make the difference between salvation and bankruptcy.