If your business is struggling with debt, remember that plenty of people find themselves in the same boat – you are not alone.
Discovering your company is in debt is not an easy concept to face up to. After months and years of building your business, the dawning realisation that it’s failing is sadly something you need to come to terms with quickly if you are going to turn it around.
If your business is struggling with debt, here are five steps that could mean the difference between staying afloat or going under.
1. Cut costs
The first step to getting out of business debt should be to establish the cause of the problem, identify whatever sparked the initial issue, and then address them.
Perhaps your expenses are too much, and they are proving impossible to keep up with. If this is the case, you’ll need to consider changing collection terms with customers and investing more time into chasing those who haven’t paid on time.
After identifying the cause of the problem, you’ll need to look at any expenses that aren’t necessary and cut out any that you can.
2. Prioritise your debt payments
Your priority should be to pay the debt accruing the highest interest rate. This is likely to mean paying off credit cards.
Be wary of sums that have been personally guaranteed by yourself, though. Any sum that has been personally guaranteed will be collected from the guarantor if the company cannot pay. This means enforcement could be brought against personal assets if it is left for too long.
3. Analyse your budget
If your debt continues to rise even after cutting down costs, then it’s a good idea to reconsider your company budget.
This should be based on your company’s current financial situation, and you should have enough revenue to cover all fixed monthly costs. Start by using good accounting software. You’ll find it goes a long way to taking control of your budget.
4. Contact your creditors
Talking to your creditors and explaining the situation can go a long way. Often, the company directors have been in a similar situation themselves and work on a plan to help. After all, the creditors would rather receive payments in smaller chunks than not at all.
There is usually a more favourable outcome for all involved if you make it clear to the company that you will be able to pay the debt quicker if a reduced amount is offered.
The best thing to do is to ensure you can uphold your end of the bargain while compiling a plan. If a payment plan has been drawn up and defaulted, your creditors will be much quicker to jump to enforcement.
5. Consolidate your finance
In order to get out of business debt, any loans that contribute to your fixed costs should be combined as far as possible.
Many businesses have several company loans that are being repaid monthly; consolidating all of these amounts into one payment should reduce monthly costs without affecting your company’s credit rating. The main aim is to assemble several short-term loans into one longer-term package.
Contact the Future Strategy team today if you would like some more advice.
