How to Pull Your Small Business Out of Debt by Managing Your Creditors?

Small Business

Running a business is risky. About 80% of the companies fail within the first 18 months, according to Bloomberg. According to the US Small Business Administration, most businesses fail due to the lack of proper funding, poor credit management, and improper use of business funds. The lack of adequate money management within any company leads to a series of problems including covering payroll expenses and rent. Even paying the utility bills can become a challenge after a couple of months. More often than not, we see such businesses take a quick plunge into delinquency and bankruptcy.

While there are many entrepreneurs out there who believe bankruptcy to be the easy way out, it is far from the truth. Bankruptcy does not mean freedom from all payments and creditors. The Bankruptcy Abuse and Prevention and Consumer Protection Act, 2005 has made sure of that! The overall financial health of any business depends on the entrepreneur’s knowledge of debt management, debt restructuring, payback plans and creditor management.

Help your business survive, don’t opt for bankruptcy

If you are a small business owner trying to keep your business afloat amidst inundating business loans and high rates of interest, you do not need to file bankruptcy anymore. Start with the very basics to save your business:

Cut your business costs

You cannot always bail your company out with personal loans and reverse mortgages. You need to start by evaluating your business expenses. Simple things like stationery supplies can contribute to a considerable portion of business expenses. You can also think about subletting your unused space or selling off unused equipment for raising some immediate funds.

Revisit your business budget

Before you tackle your debt head-on, it is a smart move to revisit your business budget. You need to know your business finances inside-out. A sound business budget always helps to streamline the cash flow options and the necessary expenses. Budgets should ideally include your rent, utility bills, and supplier fees. If you are too occupied to look into your business budget, you can always hire a professional business accountant. It might seem like an added expense, but it is a mature step that will help your business in the long-run.

Seek business debt counseling

It is something that may not come at cheap. If you want quality debt counseling, you can try non-profit associations like SCORE Association or software like QuickBooks to help you make sense of your financial situation. Business counseling is often the preliminary step necessary for debt management.

Work with a debt restructuring company

Debt restructuring may sound complicated and fancy. In reality, it is just exploring all your current debts and weighing your options in view of your business finances. That is why most experts will recommend multiple sessions of business debt counseling before they proceed with the restructuring process.

The debt restructuring professionals directly negotiate with small business creditors and try to extend the payment period, reduce the monthly payments or renew existing credit agreements. Debt mediation firms can cost your business a monthly fee, but they are much cheaper than bankruptcy. Quite contrary to bankruptcy, debt restructuring allows your credit score to improve gradually, and your business will get another chance to survive.

Who are the key creditors of a business?

Determining the main creditors is necessary for ensuring the survival of your business. Your primary creditors can be your bank, critical suppliers, and inflexible suppliers.

Banks and financial backers

Financial backers including banks are legitimate sources of emergency business funds. They provide amicable APRs and interest rates. You need to inform them of about your business status and finances from time to time.

Critical suppliers

There are a few suppliers you can never drop from your business without prior notice. They are indispensable for running your business. It can include your accountant, IT personnel and landlord. You need to pay them regularly and keep them pleased.

Inflexible suppliers

These include your government bodies, gas, and electricity. They are impartial when it comes to businesses. They do not take missed payments lightly, and you cannot negotiate with their terms. So, just go ahead and pay them on time. Even your debt counselor and restructuring expert cannot help you get out of paying them.

Special mention: if you owe IRS money, you better get your accountant to look at it as well. IRS can be unforgiving about missed tax payments, and it can result in jail time. If you are unclear about the tax payment terms and conditions for your business, go ahead and talk to your business counselor. Your debt restructuring company should also be able to find you more straightforward ways to reduce tax payments, increase your returns or find you “hidden” cash to file your taxes on time.

Draft a smart payment policy for your creditors and suppliers

When you are already in a bad debt situation, it is wise to talk to your creditors directly. It is useful if you approach them with an efficient payment policy. Here’s how your payment policy should ideally look like:

1. What are your purchasing objectives?

What are your priorities? Do you want good quality and good credit terms, or do you cherish reliability at a lower price? Once you have your objectives in place, you can easily find the suppliers you need to pay immediately.

2. What is a general payment policy?

Since you need your suppliers to agree to your payment terms, you need the conditions to be amicable for them as well. You need to draft a payment agreement that is favorable to both parties involved.

  • Does your policy encourage trade and compromise?

Well, you need to leave room for flexibility. If you are ready to make concessions, your supplier should reciprocate as well. For example, if you want an extended repayment period, you need to show them what the suppliers would get in return.

You should ideally draft your payment policy with the help of your debt restructuring organization. The professionals will be able to formulate a plan that is both favorable and realistic for all parties involved.

You need to stay in amenable terms with your creditors. Running a business involves taking many chances. You never know when you will need to seek help from one of your creditors again in the future. Always seek the help of a professional to approach any creditor for the re-visitationof payment terms.

Author Bio:

Terry Godier is an experienced and skilled Business consultant and Financial advisor in the USA.He helps clients both personal and professional in long-term wealth building plans.During his spare time he loves to write on Business,Finance,Marketing,Social Media.He loves to share his knowledge and Experts tips with his readers.

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