According to recent statistics, there are over 30 million small businesses in the United States, with 600,000 new companies opening their doors each month. Even more importantly for our economy, nearly half of all employees (47%) are employed by small businesses, making them an essential part of society. Statistically, however, entrepreneurs face a sobering reality – only 50% of small business owners will still be operational in 5 years, and only 33% will still be open in 10 years.
The U.S. Small Business Administration (SBA) has researched why start-ups succeed or fail. Their research reveals that there are three main reasons for those who don’t make it: poor credit management, lack of money, and personal use of business funds. Businesses who can’t manage their expenses – such as rent and payroll – struggle from month to month, as do those who took on too much debt. However, reducing debt can help business owners stay afloat during the crucial building period.
Those looking to stabilize their business finances must learn to pay down their business debt effectively. This article will look at strategies you can employ to get out from under your debt and have more money freed up for other business needs.
1. Restructure your budget: Before developing a plan to reduce business debt, you’ll need to have a comprehensive understanding of your current financial situation. If you are delinquent on monthly payments – or are in danger of falling behind – take another look at your financial plan and make any necessary adjustments to reflect your actual cash flow. Your business budget will determine all sources of income and identify your fixed costs and variable expenses. If you feel overwhelmed with the prospect of drawing up an official budget, help is available. Call your accountant, or contact SCORE for free business counseling, mentoring, and online workshops. You may also look into accounting software that can keep track of the cash flow of your business and better manage your costs and debts.
2. Reduce business expenses: After you have your budget in place, you’ll need to analyze your operating costs. Are there any costs you can eliminate, such as subscriptions or memberships that are rarely used? Accounting software will help you visualize the impact on your budget as you reduce expenses in different business areas.
If you have office space that you lease, you may be able to sublet unused areas or downgrade to a smaller office. One of the interesting lessons we learned during the pandemic was that people were highly productive working from home – and that may be a way for you to reduce expenses.
You can also call your vendors to see if you can negotiate reduced prices or flat rates or change your payment plans to better suit your budget. Your financial statements will reveal where money is flowing out and may allow you to easily identify items that can be eliminated to quickly cut costs and save you from further debt issues.
3. Ramp up sales: As you are cutting costs, you’ll also want to consider ways to quickly boost your revenue through new sales. You may want to offer discounts for returning customers, deals for multiple purchases, or markdowns on the merchandise you want to clean out of the warehouse. You can provide clients with a discount if they pay in full upfront to generate some quick income. At the same time, double down on your efforts to chase down any late payments and overdue accounts receivables.
4. Establish a rapport with creditors: If your business is falling behind, calculate how much money you have to allocate towards outstanding debts. Call each of your creditors to speak about the potential of restructuring your payment terms. You can also call your lender to ask about any loan consolidation programs you may be eligible for.
You may also qualify for a hardship plan with reduced interest rates and a payment extension.
5. Hire a debt-restructuring expert: Asking a professional debt-restructuring company for help may be an option if all else fails. These experts will negotiate with creditors on your behalf to restructure agreements and payment plans. The debt-restructuring company will help set up automatic withdrawals from your bank account to settle outstanding debts. Some of the benefits of debt structuring may include extended or reduced monthly payments, reduced legal costs, the delegation of negotiations with creditors and collection agencies, and the improvement of your financial situation via consistent payments.
Bankruptcy May Be Your Best Option
Some things are out of our control, whether the economy or the job market. Even the best of efforts and intentions may not help a business get back on track financially. If you have tried everything but still need financial relief, a business bankruptcy may be your answer.
Richard V. Ellis is a Sarasota-based bankruptcy attorney specializing in personal and small business bankruptcy cases. Call today for more information and to set up a consultation.