Seeing as so many lenders are becoming much less forgiving with their terms and requirements, a vast amount of small business owners have found themselves stuck between a rock and a hard place.
Just last month, over 8k businesses across the nation, have filed for bankruptcy protection, which is more than 57% of an increase compared to the same time a year ago, and while it’s definitely one way to prevent your company from going under, the move can come at a steep price that few business owners can handle.
The fees alone can set you back anywhere between $8k and $10k, and if you factor in the long-term damage that bankruptcy will cause to your business and your credit score, it just doesn’t feel like it’s something worth resorting to.
That being said, there are a number of different ways you can drag your small business out of debt without actually filing for bankruptcy, and we’ll go over some of them right now.
Cut back on unnecessary expenses
The best way to deal with debt in your company is by identifying what led to it in the first place, and while locating this leak can be difficult at first, following the trail of money always does the trick.
Once you’ve figured out what the real issue is, you should tackle it head-on, at least according to advice from business management expert Ken Thomson, who founded Biz911 and helped hundreds of businesses on their road to recovery.
If you’re having trouble with customers that don’t pay on time, you should consider improving your money collection methods or ditching something that’s currently unnecessary to your company’s success, such as office space or expensive networking, both of which are redundant when it comes to running a small, up-and-coming business.
You could also free up additional cash by selling off any equipment you’re no longer using to companies that may need it more than yours does.
Reassess your budget
Even if you’ve gone through step one and the debts are still piling on, it means you’ve got a budgeting problem, which commonly slips past even the most experienced financial managers.
At this point, you’ll want to go over your entire budget from the very start-up until the moment you felt your business was going under, taking note of every small issue that may have spiraled out of control.
Make sure that your company’s revenue is greater than your monthly expenses like rent and utilities while also having enough to cover all the variable costs like materials and production costs if your business offers a product.
On top of this, you should make sure to pay off all your credit card debt, sometimes even paying more than the minimum on the monthly installments as a way of getting yourself out of debt sooner than you’d normally be.
Accounting software like Quicken, Peachtree, and ProfitCents can help you keep track of your budget at all times with ease.
Keep in touch with your creditors
At times, you may have to sweet talk your way out of tough payment terms on your loan, and if you’re able to get your creditor to understand your financial situation, you could get them to offer you better terms.
In fact, a lot of creditors have a hardship plan in store exactly for situations like that, and if they don’t, they may still be able to authorize a payment plan that’s more suited to your current financial situation, or at least a settlement amount that’s slightly lower than what was previously agreed upon.
There’s no need to be rude about this, and you should simply get your message across, letting your creditor know that with a better payment plan, you’ll be able to pay their money back sooner, and as long as you can fulfill your end of that deal, there won’t be any issues.
At the end of the day, the worst thing you can do is set up a payment plan only to default on it once more, so make sure your finances can handle a more optimized payment plan before making any promises to your creditor.
Get counseling
Two heads are better than one, and if you’ve got a solid team of counselors running your business along with you, financial troubles likely won’t be an issue for too long.
There’s a near-infinite number of credit counseling organizations just waiting for you to ask for their help, and while these companies normally offer assistance to consumers, they will sometimes make an exception and work with small businesses in a dire financial situation as well.
Of course, if the issues you’re dealing with are a bit more complex than what you’d expect the average American to be going through, you may still want to hire a bankruptcy attorney to get you out of a tight spot.
