Taking on the debt of the right amount and at the right time seldom happens and more often than not a business just like any individual can suffer from too much debt. Too much of debts can slowly become unmanageable and goes out of control for business. This will make the difference between a successful business and the one that struggles, just like any individual.
According to the SBA or the US Small Business Administration report, it is found that approximately half of the small businesses fail within the first five years of their existence and the primary reasons for this are:
- Lack of sufficient capital
- Poor money and credit arrangements and
- Too much of debt.
As in most businesses, borrowing money makes a lot of sense when they need to bolster business growth or expansion and especially for proper finance growth or to maintain the desired cash flow.
However, due to the Great Recession in the last decade, it has been very difficult for small businesses in particular in the last few years to survive. As a result, they have overextended themselves by borrowing too much money without considering their means and their capacity to pay back what they owe. As a result, they end up rolling their shutters down after declaring them bankrupt.
Nevertheless, SBA says that these businesses had a very high chance of continuing to survive provided they had made some sound borrowing decision earlier. This would have provided them with a lot of opportunities to avoid the onerous debt.
Nonetheless, once the creditors start knocking at the door, it is too late for a business or even an individual to perform any retrospection or any retroactive financial analysis. In such situations, there are only two options available to a small business owner to deal with their debts. These are:
- Either trying to save their business with an attempt to settle the outstanding accounts or
- Letting their business to fail.
The best way to prevent such a crossroad is to have a better and more functional exit strategy ready in place and in the case so that it minimizes the financial costs. If you are diligent with your finance management then you will not have to consider settling your debts or consolidating it or even file for bankruptcy.
Preventing such situations
When you read the debt settlement reviews you will see that experts often suggest preventing such situations to happen in the first place and even offers tips and advice to do so. Few of these effective ways are:
- Saving the business should be your first priority and option. You can take on a few calculated risks to do so such as taking out and putting money from your own pocket in order to manage your business debts. However, this is an approach that has very rare occasion in which it has succeeded and therefore you should be vary calculative and cautious while taking such risks. Ideally, experts suggest that it should be done only when you know that there are enough reasons to justify such a move and especially this is your short-term tactic and promises the likelihood of a long-term payoff.
- Cutting your costs is another useful way to go ahead if private funds are unable to bail out your business. Sit down and take time to identify the specific areas wherein you can reduce costs and curtail unnecessary expenses. Once you give time to it and analyze properly you will find one too many such areas. You may consider subleasing an unused space within your office or factory or even sell off the equipment that you seldom use. As for reducing your workforce, make sure that it is absolutely necessary for keeping your business alive because this is never an attractive option.
- Contacting your customers and suppliers is another useful move by you as a business owner. If you stay connected with your customers you will be able to find out ways in which you can increase your exposure and even find enough ideas and opinions to improve your present business model and therefore your revenue. Another useful way is to offer markdowns to your best and most loyal customers if the pay you earlier than usual. You may also contact your suppliers and negotiate with them for a further discount and even arrange for a deferred payment.
- Assuming that you already have business debts and finding it difficult to make the monthly payments on time, you will be better off if you contact your creditors, every one of them. Discuss with them regarding your predicament and tell them how you have planned to come out of this quandary. At no cost or any point of time, you should ignore your lenders. This will not only leave you in the same state where you will find difficult to may payments but will only make matters worse. Therefore, act early as it will be easier for you as well as your creditors, believe it or not. This is because it is in everyone’s interest to find an easy and feasible solution to your debts. You may request your lenders to work with you and find a way to reduce the interest rates, or restructure your repayment schedule or even increase your credit line.
- If you find that dealing with multiple creditors or collection agencies is taking away most of your valuable time and you cannot focus on the more important tasks of running your business, you can easily outsource your debt problems to any professional debt relief company. If the company is reputable and reliable, they can easily negotiate with your creditors on your behalf for settling your debts with an amount that is much lower than what you actually owe.
Lastly, you can consolidate your debts into one large payment with low interest. It will reduce the monthly costs and not affect your credit score negatively. A secured with assets or unsecured business debt consolidation loan will allow you to deal with a single creditor instead of many and keep your business running.