Tuesday, July 16, 2013

Back in Black, Digging Your Small Business Out of Debt

The economy has been tough on everyone, and more and more companies are getting immersed in debt. It's like you're stuck in quicksand and sinking fast; it seems like the easiest thing to do is to just ignore the calls, faxes and emails from vendors looking for payments.  STOP... Ignoring collection calls will not make anything go away; in fact it will only exacerbate the situation.

Prioritize debt payments
Start with your "key" suppliers, those you need to buy product from in order stay in business, and then tackle the business's highest-interest rate debt, most likely that will mean concentrating your energies on paying down credit cards. However, if you've personally guaranteed any of your business's debt-meaning, if a creditor or supplier can come after your personal assets if you default, make sure paying off those debts become a high priority as well.

Speak with creditors
Contact your creditors and key suppliers, delicately and without too much detail, explain the "cash crunch" situation to them and discuss what amicable arrangement can be made for paying down the debt and being able to continue the supplier relationship. If the other creditors don't offer one, request a payment plan or a reduced settlement amount. This isn't going to be as difficult as you may think. Remember, don't take it personally; this is your job not your personal financial situation and people are more likely to be responsive when there are open lines of communication. Make sure you can fulfill your end of the bargain. The worst thing a business owner can do is set up a repayment plan with a creditor and then default.

Seek Counsel
Negotiating with creditors can be a harrowing experience. If creditors are unwilling to work with you, enlist the help of a credit counseling organization. These companies can help detect inefficiencies and negotiate better payment terms with creditors. Be cautious when engaging counsel, as there are plenty of scammers out there. The United States Trustee Program also keeps a list of credit counseling agencies approved to provide pre-bankruptcy counseling.

Analyze the Budget
If the debt is still accumulating, then your company's current budget isn't really working out. Design a budget based on your current financial situation. Make sure your business's revenues are able to more than cover fixed monthly costs like rent, utilities and insurance. Then, allocate a portion of the budget for variable costs, such as payroll, material purchases.

It might not seem like it now, but there is light at the end of the tunnel...Stay positive and stay focused.