Whether you’re managing a start-up or an established company, striking a careful balance between manageable and excessive debts can be challenging. Additional loans and expenses are a natural part of any business growth or development, but natural business debt can quickly become a burden if left unaddressed. Failure to repay debt can ultimately lead to insolvency and business closure, so it’s vital that you make time to understand your financial obligations.
With the right focus and planning, business debt does not have to spell trouble and there are a number of strategic actions you can take to steady the financial position of your business. To help you understand the key steps to managing a business in debt, we have condensed the actions you can take into five easy steps.
1. Assess Your Situation
If you are conscious of the level of debt in your business, the first thing you should do is set aside time to assess your current situation. Your debts will never just go away, so don’t ignore them. Instead, create a comprehensive list of all of your outstanding debts, including loans and unpaid bills.
Once you’ve got the basic details of your debts in place, try and assign a priority rating to each. Interest rates, due dates and monthly payment amounts will all affect how important it is that you pay a debt back quickly, so work out which debts will require immediate or quick attention and which can be tackled afterwards. This assessment will provide you with a clear picture of your financial obligations and help you to order your debt repayment strategy.
2. Improve Your Cash Flow
When managing a business in debt, it’s also essential that you focus on improving your cash flow. Though the type of business you manage will determine the most suitable way to manage your cash flow and small businesses may differ from established companies, cash flow is the lifeblood of any business and can help to ease debt pressures effectively.
Start by accelerating your invoicing and following up on outstanding payments to boost the amount of cash you have at your disposal. If debt is a long-term problem, consider renegotiating payment terms with your suppliers and find ways to cut unnecessary costs within your business. Overhead costs can be a good place to look for savings.
3. Speak To Creditors
Renegotiating rolling payment terms is a good way to manage business debt over time, but if you need quick relief from business debt then don’t hesitate to initiate a conversation with your creditors right away. Most will understand that businesses experience peaks and troughs when it comes to performance and may be willing to work with you if they can see that you have a clear strategy for future debt repayment.
At the very least, an honest conversation with your creditors may encourage them to be more understanding about the position your business is in, though you may also find that they are more proactive and help you to work together more effectively with lower interest rates or extended deadlines.
4. Raise Additional Funds
In some cases, careful planning and good cash flow management might not be enough to manage business debt. In these circumstances, finding ways to raise additional funds to settle your debts will be essential.
Raising additional funds is a challenging task and the likelihood of finding good investors will always be higher if your business is debt-free. However, you could sell non-essential business assets to do this. Your creditors may prefer the funds from this now as opposed to partial or lesser payment should the business be liquidated and assets be distributed as payment.
5. Speak To An Expert
Lastly, remember that dealing with business debt is a challenging task and that there are professionals available to help. A business recovery expert can provide a fresh perspective and tailored strategies for your specific situation, helping you to make informed and legal decisions about wider measures you may wish to take such as debt consolidation, business restructuring or even liquidation.
Don’t hesitate to get in touch with the team here at Ballard Business Recovery for honest and trustworthy guidance when it comes to your business debt.
