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.

How To Fund Business Growth

If your small business is doing well, you might be thinking about how best to expand from where you are. Whether you want to open a second site, expand your product range with private label products for small business, or take on more staff, expansion can be pricey but can be worth the investment. If you’re ready to grow, but aren’t sure how to finance this growth, try some of these ideas. 

1. Look for specialist financing. There are companies out there that offer finance options for specific industries, such as medical finance companies that will lend money to medical professionals to expand.  This sort of funding can be used towards expansion or new office space to help you improve. 

2. Get a loan through the bank. There are plenty of loans available to business owners. Most business owners know about the loans available to get their business started but don’t always think of this kind of option when they’re trying to expand. If your finances are in good order, a loan could be a smart way to find the money to help you. 

3. S out angel investment or venture capital. Angel investors are people who invest in new or growing businesses, generally in exchange for capital. This money can be very important for a business that is stuck at a smaller size and needs assistance to expand. Just make sure you’re happy to offer capital or shares in your business. To secure this kind of funding, you will need to have a strong business plan to show how you plan to achieve the growth you’re aiming for. 

4. Explore crowd-funding. Crowd-funding can be very successful for business with a loyal customer base. Businesses like BrewDog have raised millions to help them to grow their businesses. Crowd-funding works by offering incentives and rewards to the public who buy into different levels of support. You could offer everything from free merchandise to shares in the company. 

5. Apply for a government grant. Some governments and other organizations offer grants and other options for finance that won’t leave you with debts to pay afterward. Most grants are intended for new business, rather than established ones, but there are some options out there if you keep looking. 

6. Ask friends and family for loans. Shorter-term loans from family and friends are simpler to manage, as there’s no bank to deal with, no complicated terms to meet, and usually lower rates of interest. If you do choose this option, make sure you legally lay out the terms of the loan, especially when agreeing on the terms of repayment. This reduces the risk of causing arguments later on if one of you feels the other is taking advantage.

7. Use your overdraft. If your bank has a generous overdraft option, then this can be a potential option for short-term borrowing. Just be aware that an overdraft can come with large interest fees, so it could end up costing you more cash in the long-run. This is a better option for smaller amounts of money, for example, to fund marketing campaigns, but is a poor choice for larger amounts for expanding to a second site. 

How To Achieve Bulk Business Savings

In business, it’s incredibly important for us to ensure a routine and deliberate goal of optimization. Optimization may mean being able to review our staff every year to ensure they’re functioning as promised and trained, and if they’re not, we may decide to make adjustments to our ranks. 

Additionally, we must manage our own skills. For instance, we may be expertly technically proficient, or able to run accounts carefully, but the other skills that ensure your leadership value include being able to manage people, and stay calm in the face of struggle. We may choose to optimize ourselves in this direction through careful training and reflecting on our experience.

Savings are, of course, also important to optimize. This is because by reducing your costs, your revenue has further room to help you break even or contribute to your profit levels. This means that looking to cut costs in a way that isn’t as indiscriminate as randomly letting people go, nor harmful to the overall operation of your company is important. In the following advice, we’ll discuss how to cost-cut wisely:

Loyalty

Over time, the loyalty you hold with a particular supplier or business to business connection can help you grow goodwill. This may result in particular discounts given only to you, or the ability to purchase extras to your order for a fraction of the price. You’d be surprised just how much businesses are willing to help one another out, even through a few complimentary items with each order, provided it keeps a regular and trustworthy client or connection happy. Provided you reply with the same goodwill in turn, you’re sure to achieve bulk business savings with your best supplier.

Bulk Orders

Crafting the inventory requirements necessary for bulk buy and storage of orders can help you gain massive discounts when regularly supplying yourself. Economies of scale suggests that the more products are sold, the more they can afford to be given away more cheaply. This means that negotiating with your potential suppliers in regards to bulk orders may grant you better terms than you had imagined to begin with. They achieve a large and reliable order, you gain plenty of items and some for a fraction of the cost. Everybody wins.

Pay For Use

Some services are so considerate that they allow businesses or regular clients alike to pay for what they use, not some artificially inflated fee to cause confusion or to put everyone on the same standard. For instance, when you visit Unishippers for shipping rates, you will be amazed at how clear and forthright their pricing options are, and how justified they will be through the fair use of their service. This is great pricing, and it’s important to understand that these standards can exist in other firms for other purposes if you’re willing to research your best options. To that end, you can reliably achieve savings by only paying for the value you receive.

With this advice, you’re certain to reliably achieve bulk business savings in the best possible context.

Can Self-Funding Boost Your Business Skills?

When you’re in the process of launching your own business, financing options can be sparse. For solo entrepreneurs, independent experts, or even freelancers, applying for a commercial loan is not an alternative. Money-lending institutions are more likely to consider established companies that have shown they can successfully generate an income. Newcomers who don’t have the backing of an investor or an income-generating history are not going to be lucky in their loan applications. Therefore, self-funding strategies are the way forward to finance your first business. 

Unfortunately, self-funding can also be the quickest way to build up debts and put yourself in an uncomfortable financial position. Ultimately, when there is no commercial lending available, you will need to apply for a personal loan or additional credit. What this means is that you are forced to use your own finances to support your business, which can be risky. But there are some simple tricks you can use to ensure self-funding strategies don’t drag your credit score in the red.

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Self-funding through credit

While funding your business through personal finances and credit can put you at risk, it is also a valuable lesson in strategic awareness. Indeed, you know that you need to design a simple but effective growth strategy to build up momentum in a short period. From a business perspective, self-funding makes you more focused and determined to succeed. While it doesn’t mean your company will hit the ground running, it puts you in a stronger position to make better decisions and work harder. Additionally, it forces you to prioritize money-making tasks over design and culture development – which need to evolve organically in the business. 

Streamline your expenses

There’s no secret: If you’re going to pay for your business from your pocket, you need to make sure you’ve got your expenses under control. Things couldn’t be simpler when it comes to budgeting for your ins and outs. Firstly, you want to make sure you can address all the necessary expenses, from monthly rent to energy bills. Secondly, you need to focus on how you can cut down on those mandatory costs WITHOUT losing your comfort. While it may not seem much, something as simple as switching for a cheaper car insurance contract could free up some money and let you repay your self-funding credits more easily. In short, keep your eyes open for grocery vouchers, new energy providers, insurers, etc. that let you pay less for the same thing. 

Reduce unnecessary costs

Once you’ve tackled the necessary expenses, it’s time to focus the next chapter of your budget on unnecessary costs. From buying a cup of coffee every day at your local coffee shop to investing in new fashion items, learning to save money on coffee, fashion, or anything else forces you to think creatively. You may not be able to accumulate huge savings. But you will tap into your unused creativity and self-reliance, which you can repurpose to build momentum in your business. 

Self-funding is no guarantee that you can become a successful entrepreneur overnight. However, it gives you the key to unlocking your talents as a creative thinker, a strategist, and a budget ninja. You have to learn fast when you can only count on yourself!

Sources of Personal Financing for a Business

Personal financing for business is a form of financial planning and self-funding through established personal and familial connections in addition to individual contributions. According to research conducted by fundable, the majority of startups are self-funded, either through family, friends, personal savings, and lines of credit.

Self-funding, also known as bootstrapping, is synonymous with maximizing human capital first before utilizing the self-generated funds. This is meant to reduce dependency on external financing and improving the efficiency and resourcefulness of the business. Besides promoting self-reliance, self-funding is also strategic for maintaining ownership and control in a business. Below are sources of personal financing.

Personal Savings

Using personal savings to finance a business venture is a cost-effective method that comes with no interest or other added costs. In most cases, personal savings only cover part of the funding required, but there is reduced risk.

Funding a business with personal savings eliminates any form of repayment schedules associated with other methods, allowing you to develop your business without financial strain. Personal savings are available in different forms, such as; cash, checks, bonds, and liquid assets. This financing method is suitable for funding small businesses with manageable costs and risk factors.

Personal Credits

This source of self-funding refers to taking a personal line of credit to finance a business. There are several different avenues of acquiring credit, ranging from family and friends to various financial institutions. Some of the available credit options include; borrowing from peers, personal loans, a home equity line of credit, mortgage and borrowing against life insurance, and investments.

Credit funds issued to entrepreneurs are limited based on their creditworthiness and security or collateral. Weighing the risk factors, some financial institutions offer home equity loans and second mortgages to add to cash flow. Another credit option that’s also available to some entrepreneurs is special business loans offered to specific target groups.

Self-funding through credit does carry risk, especially with collateral requirements and periodic repayments. To qualify for a line of credit, you are required to have a decent credit score and a clear business plan outlining the payment plan.

One of the critical factors in choosing personal financing is the vastness of untapped resources that won't burden the business. These funds are essential for acquiring new investments, purchasing inventory, and consolidating debt. One of the main advantages of self-funding is the self-awareness imposed on you towards managing finances and putting in place contingencies. Bootstrapping is an effective way of funding your business venture if you're not prepared to take on unnecessary business liabilities.