Many businesses fail because they are not aware about options available to eliminate small business debt. According to the U.S Small Business Administration (SBA), several small businesses fail because of poor credit management, lack of money and personal use of business funds. Businesses that have insufficient money to cover basic expenses such as rent and payroll can easily and quickly rapidly spiral into delinquency or worse, bankruptcy. To make matter worse, the Bankruptcy Abuse and Prevention and Consumer Protection Act of 2005 has made it more difficult for small businesses to prove that they should be cleared of all or some of their debts through Chapter 7 bankruptcy. Thus, it is important for you, as a business owner to understand the various options available to you for methodically and effectively paying down business debt. Before your bills become unmanageable, it’s wise that you start to eliminate excess costs, restructure your debts through a third party and be proactive and formulate a payback plan that enables you to manage your bills.
Here are the ways in which you may eliminate small business debt:
- Reconsider your business budget: Prior to attacking your business debt, be sure to understand your present financial situation. If you are unable to make monthly payments, consider your financial plan and adjust for unexpected changes in cash flow.You will be able to identify your income sources, fixed costs and variable expenses through a business budget. This will also assist you in setting aside a monthly amount to pay your landlord, suppliers and creditors. At the end of the day considering your budget will help you better manage costs and form a plan of action for reaching your debt-reduction goal.
- Reduce business expenses: your next step will be to consider your operating costs. Determine which expenses you may reduce or eliminate versus the services that are essential for the daily operation of your business.For instance, do you pay for subscriptions that you hardly use? Are there professional memberships you may suspend until you get your ducks in a row? It is wise to contact your accountant, or use an accounting program to forecast the financial impact of cutting costs in different areas of your business. If you are renting office space, look into subletting unused space, or downgrading to a small work area to reduce your monthly rent. Your financial statements may be helpful in exposing expenses contributing to your debt. Eliminating costs may be the quickest way to increase cash flow and chip away your liability before turning to more drastic debt-reduction measures.
- Increase Customer Sales: Figure out ways to increase customer sales that will boost your revenue. You may do this by offering mark-downs on merchandise and discounts on services, particularly for loyal clients. In addition, ramp up accounts receivables by following-up on late payments from customers. For example, presenting your clients with discounts for paying fees upfront may assist in improving your cash flow.
- Communicate with Creditors: If you cannot make your monthly payments to your creditors, prioritize debt payments to determine which creditors and suppliers must be paid first. Your cash flow statement will assist in identifying delinquent accounts and missed payments. Once you have determined the amount of money that you can allocate towards outstanding debts, contact creditors to check if they are open to arranging payment terms. Find out from your creditors about available loan-consolidation programs which can group multiple loans into a single monthly payment.
- Work with a debt-restructuring firm: Seeking the assistance of a professional debt restructuring firm is another option if the above options have failed. These professionals negotiate with creditors and collection agencies on your behalf to formally extend, renew or change existing credit agreements.
Our business debt relief lawyers have helped many entrepreneurs eliminate small business debt. For those business owners who prefer to avoid filing bankruptcy, there are various debt relief strategies available. We can assist you eliminate small business debt by offering the following services: