Contrary to what many people believe, having debt isn’t inherently a bad thing. After all, how can you buy a house, a car, or start your dream business without taking on at least a little debt? The issue becomes when the debt-to-income ratio becomes imbalanced, or in other words, the amount of debt is disproportionately higher compared to monthly income.
When this happens to a business, measures need to be taken immediately to keep the problem from becoming worse. After all, what happens if cash flow suddenly dries up? Your doors could be closed in a flash.
To avoid becoming another small business that closes their doors due to poor debt management, consider these nine debt relief strategies.
Can You Help?
As the owner of a small business, your debt issue falls squarely on your shoulders. How can you personally keep the business afloat? You might not want to dump personal funds into a business whose long-term survival is questionable at best, but if you have personal money to spare, every bit count.
(Proactively) Contact Creditors
As with personal debt, creditors ultimately want to get paid. By proactively reaching out once you realize the seriousness of your business’ financial situation, you stand the best chance of negotiating a lower interest rate, restructuring your payment plan or increasing your credit limit.
Can You Take Out A Private Loan?
If you’re savvy and diligent enough, you might be able to find a private loan with a low enough interest rate that allows you to take care of some of your more pressing business debts. This is effectively a DIY debt consolidation strategy.
Outsource to a Debt Relief Provider
Whether personal or business-related, experiencing debt is stressful. If you’re handling your business’ debt relief efforts yourself, you might find that your normal business operations are suffering as a result. Should the balance become too great, it might be worthwhile looking into debt relief companies. Companies like Andrew Housser’s FreedomPlus work to consolidate debts by taking out a new loan with a lower interest rate to pay older balances, thus simplifying what you owe and eliminating the higher interest rates plaguing your cash flow.
Tread lightly with this option. In fact, think of it as a “last-resort” measure. After all, employees are the fuel of your business, without their hard work and care, your business wouldn’t stand a chance. But when operating costs need to be cut and you’ve exhausted your other options, employees can end up as another line item to trim.
Sell Unused/Less-Needed Equipment
Look around your operation. What processes aren’t central to the day-to-day operation? What equipment isn’t justifying its cost based on usage? You may have experienced a boom in the past and wisely invested money back into an area of your business you thought would grow, but it didn’t. Try to sell any non-essential equipment you have for immediate cash.
Downsize or Adjust Business Space
Do you need all your business space? Do you need to operate in your current zip code? Moving your entire operation to a new building won’t be cheap, but if you can save money by moving to a cheaper area of town, do it. Likewise, if you don’t have a use for all your current operating space, consider renting a portion of it to another business. The month-to-month savings will help get your debt back to manageable levels.
Re-Assess Supplier and Customer Opportunities
Been with a supplier for a while? Have a loyal customer that owes you a lot but is typically slow to pay? Consider all your business relationships and if there’s any area to generate better margins or more immediate funds. Maybe your supplier could give you a little bit friendlier of a rate due to your loyalty. Or perhaps you could offer a customer a small percentage off their balance if they can pay you right way. Whatever you can do to free up more cash or improve your regular operating expenses is worth investigating.
It’s not a glorified strategy, but if all else fails and you’re still determined to keep the business alive, declaring chapter 11 bankruptcy becomes an option. Chapter 11 isn’t a wise option for most small businesses due to the costs of filing and appointing an attorney, etc. However, if your personal assets are at stake with your business, then declaring bankruptcy can make more sense.
Running a small business comes with constant challenges, but none pose a threat quite like poor debt management. Closely monitor the debt you’re carrying and if things should balloon to problematic levels, consider one or more of the above debt relief strategies.