Is Your Business Drowning in Debt?

Running a business with sufficient funds is the key to being successful over the long term. You need extra funds available in case you need to hire a new team member, market an existing product or service, or test the development of a new product. Avoiding taking on debt as much as possible for long as you can is essential to the longevity of your business. Continue reading to learn how to avoid going into debt or stop digging yourself into a larger debt hole.

It’s unfortunate but many businesses get into deep debt, which they are unable to pay off. In fact, 26,000 businesses go bankrupt every year in the US.

Knowing how to deal effectively with your debt can be important for reducing financial damage in the long run. There may be a way to keep your business afloat. If not, it’s important to find the exit strategy that’s going to cause the least harm to you and your associates. This brief guide can help.

Top Signs Your Business is Drowning in Debt

Here are a few tell-tale signs your business is in debt and doesn’t have any way out of it.

You’re consistently accumulating debt (on credit cards, borrowing from family or friends, or taking out personal loans) faster than you can pay it off. You believe that every idea you have will be a huge success and yield massive results for your business but only results in failure.

People are chasing you for payments. You receive past-due notifications or telephone calls from those you owe money to. If you have vendors and suppliers calling you to make payments and you hide from them, then this is an issue. If you’re in business, paying your bills should be the first thing you do every month to prevent being turned over for collections.

You’ve lost track of how much you owe - and who to. If you don’t keep spending records, then you probably don’t know how much revenue you have coming in vs. going out. This is a recipe for failure.

If you don’t track your expenses, then there’s no way you will be able to prevent overspending. Creating a budget for expenses every month is vital to prevent spending too much and getting into debt.

You’ve made significant cutbacks (by laying off staff, closing offices, and eliminating excess waste) and you’re still struggling to pay off your debts. If you’ve cut out the extraneous expenses and are running with a skeleton operation, and you still can’t make your minimum monthly payments, then it’s time to evaluate how you can increase revenue so you can start paying your debt’s minimum monthly balances. Paying the minimum amount due every month isn’t ideal (because of high-interest rates) but it’s a start.  

Steps to Take to Start Getting Out of Debt

First, you need to decide how much your business means to you and your livelihood. If you’re eager to keep your business alive and continue running it yourself, it could be worth looking into debt consolidation options and debt reduction options, especially if you have tens or hundreds of thousands of dollars in debt.

A consolidation loan may be able to pay off multiple debts, turning your debt into one single reduced monthly debt payment. Meanwhile, there are specialist services that may be able to help you negotiate with debtors/creditors to reduce interest rates and lengthen terms so that your debts are easier to pay each month.

If you want to keep your business alive but don’t want to run it yourself, then there may be the option to sell your business in the near future. Selling a business with huge debts isn’t easy but it can be done with the right approach – some buyers/investors specifically target struggling businesses and turn them around to be profitable. You may have to accept a very low price and other unfavorable terms, as well as the option of continuing to pay off some of the debt yourself. But certain business brokers can help you with the sale process. This guide at https://www.forbes.com offers more information on selling a business with debt.

The third option is to close your business and go into voluntary liquidation. An IP will sell any company assets, pay creditors, and manage the closure for you. Most of your debt is likely to be written off and you can walk away without that debt looming over your head. This can be a viable option for those who have considerable debt and can’t pay it off.

There are other services such as https://www.dtss.us/ that can help you find the best option while causing the least amount of damage to your credit score. These services can educate you on your rights so that you know exactly what you can and can’t do.

Bankruptcy as a Viable Option to Eliminating Your Business Debt

Bankruptcy is the fastest way to wipe debts without resorting to total liquidation. You can go bankrupt and keep your business alive if you’re a sole trader or the sole owner, but this isn’t an easy path. Often assets such as your business or assets that the company owns will be used to pay off any outstanding debts. While this is not the right option for every business owner, it’s worth seeking the right advice before declaring bankruptcy.

There are also support services that you can use to help you recover after bankruptcy. These companies provide services that could involve finding lenders where appropriate and repairing your credit score.