Did you know that nearly nine thousand businesses yearly file for bankruptcy? Often, this is due to unavoidable industry circumstances, and other times it is because the business is not doing its due diligence when it comes to monitoring spending. If you find that your business seems to be taking on a lot of debt and numbers tend to be more often than not in the red, then it might be time to start tightening up.
Understanding your debt and knowing how to manage it, what's more, how to get out from underneath it, is critical to the overall success of your company. There are ways to cut costs, there are ways you can reduce spending and ultimately get your business back where it needs to be. Here are five things that you can start doing ASAP to get out from under the debt that may be burdening your business.
So what exactly is business debt? Obviously, in its simplest terms, debt is money owed to suppliers, vendors, anyone or any party from whom you've borrowed and thus need to pay back. Sometimes the debt can be on the smaller side, while other times, for let's say capital improvements, etc., it can be in significantly larger amounts.
There is almost always interest associated with any such debt that you have. This can be simple or compound interest. Simple interest is based on a set rate and is charged on the amount borrowed. Whereas compound interest is charged on both the principal and the interest which accumulates on top of that.
5 Debt Reduction Strategies
An all-too-common story is a small business folding because they've taken on too much debt and thus cannot keep up with it in relation to what they have coming in. They must file for bankruptcy and usually, it's a matter of time before they have to close their doors. To help your business stay solvent we've compiled a few things you can do to try and cut out some of that debt.
Revisit the Budget
If it feels that debts are spiraling out of control, then you probably need to rethink that budget. It may even be a smart idea to hire some outside financial help—someone who is an expert on budgetary matters. Think about every single expense you have—even if it seems to be a smaller one. You have to account for absolutely everything that is going out. Otherwise, you will leave yourself blindsided as you remain unaware of the exact source of your monetary setback.
Time to Prioritize
Acting on debt can be hard. Yes, you have other things to which you want to allocate your company's money; however, if you just let a debt go and ignore it, it is only going to make matters worse. What's more, if you default in some way this could be disastrous for your organization. Address the debt! Try and pay more than the minimum each month. This may mean reprioritizing where money does in fact go, but if it results in lowering that debt then it is probably worth it.
Debt Consolidation
This can certainly help as far as making the debt seem more manageable from a monthly perspective. And particularly, let's say you have a series of short term or other such loans, merging them into one payment can make it much easier to navigate.
Some of the benefits that you receive with debt consolidation include a single payment to keep track of thus making record keeping easier, fees tend to be lower on consolidated debt, there is a much clearer timeline as far as debt repayment in sight, you often can find lower interest rates by consolidating your debts. It definitely can't hurt to talk to someone well-versed in the nuances of debt consolidation as it could mean the difference between whether or not your company sinks or swims.
Reinvigorate Your Sales
While this may seem like a no-brainer, doing all that you can to ramp up those sales numbers will help you crawl out of the hole of debt faster. You can't really manage debt effectively if you don't have consistent sales numbers. So the key then is figuring out what you need to do to sell more goods/services. A couple of ideas to keep in mind: start a new promotion. Giveaways tend to be hugely popular as are coupon promos. Start doing more with social media. Every company needs to have an online presence—this is a great way to attract new customers. Just get out there and sell! Good old fashioned grassroots strategies still work!
Negotiate with Suppliers
Often times your suppliers will be willing to work with you. As long as they know they are going to be receiving some form of payment and that they will continue to earn your business in the future, they certainly may be open to various repayment options. It never hurts to approach them, especially if you are currently buried in debt.
If you have been a good customer to this point, they may even extend you a longer grace period in order for you to get back on your feet in a manner of speaking. Remember, if you fold, your creditors don't gain anything. Odds are they will work with you so that you can pull through.
Moving Toward Being Debt Free
While business debt may be troubling, it can be overcome if you make smart financial moves. The long-term health of your company depends on it.
There are debt management professionals you can consult. They've often helped a number of businesses who might otherwise have had to declare bankruptcy. They may even be able to talk to lenders and creditors on your behalf and potentially work out better terms for repayment. Remember, near nine thousand businesses a year go into bankruptcy—if you don't want to be among that number it is critical that you get your debt under control. At First Union, we can help if you are in need of funds to pay your debt. We offer many loan options that can help. Call Today!