Just about every small business has experienced the crippling burden of debt. What initially seemed like a relatively easy payoff can turn into a mounting pile for those who don’t find their footing right away.
Suddenly there’s so much debt to pay off that just the sight of an envelope can be blinding. While debt is typically a pretty common aspect for a small business to acquire, too much can shutter an entire operation.
If your small business debts have you feeling like you’ve been backed into a corner, here are some tips to dig you out in no time:
1. Cut Costs and Free Up Cash
First order of business is to look into what got your business into debt in the first place says Charles Anderson CEO & Founder of commercial equipment and asset financing company Currency.
“First take a hard look at what you’re spending funds on and then take a look at where you believe you can remove excess overhead,” Anderson advises. “The best thing you can do for the business at this point is to identify what expenses aren’t working with your budget and make sure that you are forecasting necessary budget cuts for the future.”
Anderson also encourages businesses to reconsider their office space or equipment that has gone unused for over a year. Once you’ve freed up cash internally, turn to clients who have yet to pay you for services and ramp up your collection efforts.
2. Take Another Look at Your Budget
If you find that debt continues to be an ongoing problem for your business, it’s time to reevaluate your budget. By now it should be clear to you that it isn’t working. Sit down and craft a new budget that properly accommodates your business needs and current financial status. You’ll want to ensure that your business’s revenues can account for more than fixed costs such as rent, employee salary, manufacturing costs and utility bills.
The remaining cash should be used to pay down debts. Start using leftover funds to pay off more than just the minimum amount of your credit-card debt. Remember, the longer you take to pay off your debts the more it will build. At this point, you have to entirely avoid adding any more to your debt pile.
3. Make Debt Payments A Priority
Before anything else, you’ll want to focus your efforts on tackling your business’s highest-interest rate debt. For most businesses, this means narrowing their attention to paying off credit cards. If there’s a chance that a creditor or supplier can come after your personal assets then make those debts priority.
4. Talk To Your Creditors
Don’t be afraid to talk to your creditor. Remember, at the end of the day their goal is to simply get paid. They’re likely not very interested in chasing you around to get their money back either.
So, before it’s too late, head over to their office and fully disclose your financial situation to them. Explain the financial hardships that your business is currently enduring and provide them with information that maps out your previous efforts to reduce costs.
You’ll want to show them that the more they reduce your debt the faster you will be able to pay them off. Likely they’ll provide you with information for a hardship plan that can make your payment terms easier.
However, be sure to remember that once they’ve given you a second chance you have to live up to your end of the bargain. As Anderson points out, a business owner who sets up a repayment plan with a creditor and defaults won’t get that opportunity again.
5. Consolidate Your Loans
Just as you would with consumer debt consolidation, gather your business loans and combine multiple loans with various interest rates into a single loan with a lower rate. This will allow you to take out an entirely new loan that replaces all of the loans before it.
In this scenario, a debt consolidation firm will take on the charge of negotiating new loan rates and collecting payment to pay former creditors. You’ll pay less interest overall and only have to worry about making just one bill payment
6. Talk To A Counseling Service
The notion of renegotiating the terms of your loan with a creditor can be particularly daunting. This can be especially true if your debt has you feeling your back is against the wall. If your creditor is unwilling to work with you, consider recruiting a credit counseling organization for help.
Typically these nonprofit organizations strictly offer help to consumers, but some are willing to work with small-business owners.
For those who’ve found themselves dealing with surmounting issues, seeking out a bankruptcy attorney for their advice will likely be more effective.