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Are you a business owner that is struggling to deal with mounting debt? You are not alone. There are thousands of companies of all sizes across the world currently in critical condition.
Fortunately, there are many actional options that you can take to stop sinking and regain control – no matter how much debt you are in. In this guide, we’ll explore practical solutions like debt consolidation, making smart cutbacks, seeking out grants, negotiating arrangements and knowing when and how to pursue insolvency.
First, understand your debt situation
The first step should be to list all your debts – loans, credit cards, suppliers and taxes – to get an idea of how much debt you owe. Then prioritize which debts need to be paid off first. Consider the payment terms of each, interest rates and any collateral you’ve used. Also consider your relationship with each creditor.
Next, work out your cashflow, and determine how much more money you can put towards your debt each month. If you’re already making a loss each month, you’ll need to find a way of upping your revenue or cutting back your expenses first.
Consolidating your debt
Keeping track of lots of different debts can feel like a juggling act. You have to remember each payment date and how much you owe each creditor. A recommended step for many businesses dealing with multiple debts is to consolidate all of this debt i – this involves taking out a single large loan to pay off all your existing debts, so that you’re dealing with one single debt payment each month.
Make sure to take your time comparing debt consolidation loans. If you don’t have a good credit score, you may be stuck with high interest debt consolidation loans. That said, there are government-backed options available from the Small Business Administration (SBA) that can have more favorable terms.
Making cutbacks
Making cutbacks could be essential to surviving, however it’s key that you make the right cutbacks. Trim the fat without losing muscle – focus on negotiating with suppliers, switching insurance/energy providers or even downsizing office space if remote work is viable in order to access better rates.
A key aspect here is prioritizing payroll. Your team is your company’s beating heart, and you need to make sure salaries are paid in full and on time (in many cases, it’s a legal necessity). You should also try to avoid layoffs if you can. Temporary reductions and performance-based incentives are much better for preserving morale. Alternatively, reducing spending on elements like marketing to siphon this money into your payroll.
Seeking grants
A lot of business owners don’t realize that there is likely free funding out there that they haven’t taken advantage of. Unlike loans that burden you with extra debts, grants don’t have to be paid back.
These grants include government grants, state grants and local non-profit grants. Most of these grants are only available to specific businesses in certain situations, but it’s possible that you may find some more general free funding options out there.
Tracking down these grants isn’t always easy and you may want to consider hiring a debt advisor to help you find this funding.
Quickly increasing revenue
There may be ways in which you can quickly boost revenue without having to invest too much money upfront. This could include promotional offers to quickly shift stock, discounts to new clients that pay in full (as opposed to using installment plans) or promoting gift cards.
If you are owed money by customers, now could also be the time to put extra effort into collecting your debts. If some customers are several months behind on payments, make sure you have chased them up and consider offering discounts for paying all their arrears upfront. Alternatively, you can look into invoice factoring – this involves using specialist companies that will pay you 80% to 90% of what you are owed upfront, while taking over responsibility of chasing up your client’s debts.
Negotiated arrangements
Don’t underestimate the power of negotiation. Many of your creditors want to get paid and will appreciate you working with them to pay some of the money due back – even if it means extending payment terms, reducing interest or settling for less than owed.
Ring up your creditors and explain your situation, while proposing a plan to pay back the money. Some creditors will not budget when it comes to renegotiating payment terms, but there will be others that will, and you need to take advantage of this.
You can also work with debt relief companies that can help to negotiate for you on your behalf. This can be worthwhile when dealing with large arrears or threats of debt recovery.
Pursuing insolvency
If you have reached a point where the debt is overwhelming and you have tried the above measures, insolvency may become the only viable escape route. This is a serious step, however it could prevent you losing assets or facing more heavy penalties like fines in the future.
It’s best to consult a licensed insolvency trustee to help you negotiate this process. You will likely still have to settle some debts along the way, but ultimately you won’t be asked to pay back more than you can afford if you got into a situation that you cannot feasibly recover from.
As disheartening as insolvency is, try not to see it as the end, but as a chance to reset. There are many companies that have bounced back from bankruptcy. Yes, your credit will be impacted for years, but you’ll no longer be worrying about those debts and will have learned many lessons that can help you to rebuild better and stronger.
Conclusion
Taking action early is always the best way of dealing with debt – the longer you leave it, the worse it will get. Start by consolidating your debt and making cutbacks, and then pursue other solutions.
Be realistic about when you can no longer pay back your debts and get help when considering insolvency. Try not to see insolvency as the end, but instead see it as a chance for a fresh start.
