When your business is in debt, you may feel like the only viable option left is closing it down and filing for bankruptcy. Every business is faced with different financial challenges, and business owners are tirelessly looking for a way out. This article will learn about 5 helpful steps to embrace if your business is in debt.
1. Boost Sales
Boosting the business’ sales can rescue a collapsing business due to heavy debt burdens. Increasing sales helps the business get enough cash flow to offset debts. These are some of the recommended ways to boost sales for your business;
- Rewarding Loyalty– Introducing a program to reward loyal customers will help increase the customer retention rate.
- Increase Social Media Presence– Social media has become an important marketing tool for businesses, including start-ups and Small and Medium Enterprises (SMEs). A 2016 research by BrightLocal reported that about 84% of customers trust online reviews as much as they trust recommendations from friends and families.
- Increase the prices- This must be done by adhering to the right strategy, such as introducing discounts on volume purchases to ensure that customers are not lost.
2. Debt Refinancing and Consolidation
The major objective of refinancing or consolidating your business debt is to make lesser monthly payments. It is essential to renegotiating your business debt with high-interest rates and a low-interest rate loan. The funds from the new loan will be used to clear the expensive business loan. Therefore, the business owner will have a reduced loan burden as they only need to service the new loan with reduced interest rates. Similarly, business loans with higher interest rates can be consolidated with loans that have lower interests. This will reduce the monthly payments to sustainable levels.
3. File for Bankruptcy
When you cannot pay off your business debt, filing for bankruptcy becomes a viable and vital solution. Bankruptcy protects you from creditors through an automatic Stay Proceedings legal order. This legal order gives you a target date to have a clean report. Hence, the focus will be on rebuilding and regaining your wealth. The ‘Stay Proceedings’ protect you from any lawsuits by unsecured creditors and wage garnishments. You can learn how to file for bankruptcy in 4 simplified steps and understand the pros and cons before continuing with the process. Filing for bankruptcy is a tedious process but when you follow the right procedure, it becomes less time-consuming.
4. Revise Payment Terms
Having long-term payment agreements with clients can burden the business owner who is struggling with debts. For example, if your clients have up to 90 days to make their payments after receiving goods, it won’t be easy to continue servicing your business loan monthly. Thus, revising the payment terms with your clients can help. Ideally, it would be better to shorten the clients’ payment duration from 90 days to about 30 days.
5. Cut Costs
It is recommended to check your financial reports and eliminate unnecessary costs. Also, it would be helpful to trim expenses that wouldn’t be possible to cut completely. Doing this may demand changes that may be challenging to implement but necessary to save the business from collapse. For example, you can decide to embrace sale-leasebacks for all vehicles owned by the business. Additionally, you can shift your business premises or stores to a space that charges lower rent. Besides, you can decide to sub-lease any unused rooms and spaces.
Finally, all business owners wish to salvage their business from the burden of debts. However, it may become necessary to take strong measures such as filing for bankruptcy. A bankruptcy note will remain on your credit report for not less than 6 years. Within those years, you should improve your credit score and regain your financial position.
