Collaborative Post
Nobody likes to face the fact that their business is sinking into debt.
You’ve been trying to correct the situation for some time, but your creditors are starting to bite back. The simple fact is that you owe a lot of money to a lot of people. Unfortunately, you may also have employees to pay, meaning any money your business makes goes straight to them. It’s a tough situation to be in, so what steps should you take when your business has growing debts?
Improve cash flow
The first step is trying to improve the flow of money running through your business. Sometimes, you’re in debt because you are waiting for payments from customers. It’s a frustrating situation as you do have the money to pay suppliers or creditors, but not quite yet. Therefore, following customers up and sending out invoices demanding payment can help to improve cash flow in your company and pay your debts.
Similarly, you can improve cash flow by reducing the money leaving your company. Look at your expenses and see if you can reduce them as much as possible. Your marketing campaign can be a good place to look. Check your analytics – do you really need to keep paying for TV ads if they’re not bringing new customers? Similarly, look at your inventory management to deduce if you need to buy as much stock as you’re currently buying. If you overbuy stock – and it doesn’t sell out – you’ve got a lot of money sitting in your warehouse that isn’t getting converted into sales to help pay debts.
Finally, the worst-case scenario is that you start letting people go. No business wants to make people redundant, but it might be necessary to save your company. It’ll take a chunk of money off your expenses, helping cash flow and giving you more of a chance to pay your debts. If it helps, think about what happens to your employees if you don’t let some go to save your business. You’ll fail to repay debts, your business will close, and they’ll be out of a job anyway.
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Try to raise money
As a business, you’re in the beneficial situation of having customers that depend on you. This is where you put their loyalty to the test!
You could set up a crowdfunding page to try and inject some money back into your business. Let customers know the situation – if you can’t raise x amount of money by a certain point in time, your business might have to close down. Loyal customers may help you raise funds by donating money to the crowdfunding scheme. From here, you use this money to pay off debts and keep your business afloat.
Similarly, you could try to find a new investor to help you get out of this bad patch. Sometimes, your business is doing really well, but your debts are still mounting. Why? It’s probably because you bit off more than you could chew and spent too much money all in one go. Investors may see your company as a profitable opportunity, and they could willingly invest to keep you afloat and pay your debts.
Talk to an insolvency practitioner
Insolvency practitioners will try their best to help you deal with the debt situation at work. Places like Hunt & Hunt Lawyers offer insolvency and debt litigation services for business customers. In essence, you work with debt experts to see if there’s a solution for your company. They could help you explore options – like debt consolidation loans – to try and make the debt more manageable.
There is also the possibility of going into administration. This is far from ideal, but it means that your business gets run by a qualified insolvency practitioner. They take over everything on the financial side of things, looking for ways to reorganise your company to try and get it out of debt. One of the benefits of administration is that your company is protected from creditors. So, they can’t keep calling you up demanding payments.
It’s fair to say there is a misconception that being in debt automatically means you need to liquidate your business. This simply is not the case in a lot of situations. Start by addressing the cause of debt and figuring out if you can make payments as quickly as possible. This may mean you start improving cash flow, but it could also require you to find ways of raising funds. If all else fails, an insolvency practitioner is in the best place to help you get out of debt – or at least make your debts easier to manage. As a result, you can avoid closing your company and continue trading!