With so many startups around, it’s becoming increasingly hard for entrepreneurs to find initial investors. That’s why most people with good business ideas are forced to borrow money from banks and credit unions. When you owe money from the start, your business venture’s debt tends to pile up until it leads you to the edge of bankruptcy.
Almost 10,000 small businesses files for bankruptcy each month and if you don’t want your company to be the part of this grim statistics, you will a need an effective strategy that will pull you out from debt abyss. In this article we provided you with several suggestions on how to save your business from bankruptcy.
This is very unpopular term in countries like Greece, Italy and Spain, but the truth is that austerity measures and severe cost cutting in most cases can save you enough money to repay even bigger credit and mortgage debts. Of course cost cutting shouldn’t hurt your production, marketing or sales, because these three departments are essential for your company’s cash flow. This means that you need to cut only unnecessary costs, which usually include: costly phone systems, employee reward programs, unnecessary office and assembly space etc.
Piling up of business debt is a sign that your company’s budget isn’t working out. This means that you need to quickly change it and save as much money as possible. Budget revision is hard and costly business, but it still creates good results and in most cases eliminates further debt piling.
New budget should be based on current financial situation. All current debts as well as employee paychecks, raw material purchases and all running costs should be covered with company’s revenue. You should also single out certain sum for variable costs that include hiring professional and freelance help for different tasks, buying additional batch of raw materials and doing urgent repairs and renovations.
Speak with creditors
Most creditors will show understanding if you honestly approach them and ask them to renegotiate your debt. One of the reasons for this is because debt collection from companies that are heading to bankruptcy is a very hard and frustrating work, which can make them lose some part of the promised sum.
Explain your financial situation to creditors and tell them about all the hardships your business is going through. In the end suggest them a new repayment plan, with conditions and due dates you will definitely be able to comply with.
Collect your own debt
One of the most common reasons for companies to default is their own batch of bad debt they are not able to collect. In order for you to pay your own debts, you will need to press your debtors a little bit further and collect at least some part of the money they owe you.
You should do it by using all legal techniques, including: making calls and sending letters and e mails, discontinuing services and renegotiating business deals. If all of this doesn’t work out, you should definitely get debt collection agency help. This way you will use one part of the funds to repay first few installments to your own creditors and you will save a lot of valuable time, you can use for bringing your business back to life and liquidity.
Consolidate your loans
If all of your debt is owed to one bank, credit union, supplier or a debt collection agency you should try to renegotiate its repayment plan and consolidate all debt into one monthly payment package. This can lower your monthly costs without hurting your credit rating. One of the best scenarios towards all entrepreneurs in debt should strive is consolidating several short term loans into one long-term repayment package. This way you might also get a significant interest percentage decrease.
Accumulation of debt is one of the worst problems for beginner entrepreneurs. That’s why they should always seek counsel from more experienced players or different credit counseling centers. At the bottom line, if you even come close to bankruptcy, you should always seek advice from bankruptcy attorney.
Guest Author bio: John Stone is a business consultant and regular contributor to Bizzmarkblog. He believes in the notion that form should always follow function and that thinking outside of the box is a prerequisite of being a successful entrepreneur.