Businesses that suffer from too much debt can see their company come crashing down. How this debt is handled can be the difference between a business that sinks or swims. You can either settle the debts, or allow the company to fail, and with the right strategy, you can avoid becoming insolvent.
When a business becomes insolvent, it means they can no longer meet their financial obligations to its creditors as debts become outstanding. While there are some strategies to rescue a business once it becomes insolvent and get it back to operating normally, it’s best to try and avoid this situation altogether. With that in mind, here’s how your business can tackle debts and avoid insolvency:
Review Your Budget
If your debt is growing out of control, chances are your company’s budget isn’t working. You need to create a budget based on the business’s current financial situation. Review your last few month’s bank and credit card statements to help create a realistic budget; you need to be aware of all your sources of revenue and expenses so you can identify trends like revenues that are in decline or any costs that have been creeping up.
By categorizing your income and expenses, you will be able to get a clearer understanding of which parts of your business are the most profitable and which parts are draining your cash flow.
When you’ve got a clearer picture of your business’s finances, it’s time to find ways to cut costs and reduce your expenses. You’d be surprised how many expenses just roll out each month that may not be contributing to the upkeep of your business operations. Consider implementing some good human resource software, it can save you weeks of wasted time and money. Go through reliable articles for better understanding HR Payroll Systems and decide which of them is the best for your business.
There are three categories for your expenses: those you will continue with, those you can negotiate to a lower cost, and those to eliminate completely. Some costs will be unavoidable, like payroll taxes and renting the office space. Other costs can potentially be negotiated down, by shopping around for new suppliers or insurance companies. Finally, some expenses can be done away with altogether, but this could involve difficult decisions like letting go of an employee. However, if this becomes a necessity for keeping your business running, it might be a viable option.
Your debt problems likely arise from a low cash-flow, so increasing your revenue is a sure-fire way to help dig yourself out of debt or prevent it from getting any worse. There are many ways to do this, such as marketing your products or services more heavily towards your current customers or increasing your prices.
Thanks to your budget review, you should have a better idea about which sources of revenue are the most profitable. Focus your attention on these areas and try to increase this high-profit revenue to give yourself the best return on investment.
Tying in to the increase in revenue, you need to keep on top of payment collection from your customers. Send out invoices promptly, as soon as your product or service has been delivered. Do everything you can to collect payment from customers as quickly as possible, so be diligent with your record-keeping so you know who still owes you payment. Make sure you’re chasing those payments regularly, so your cash flow doesn’t stagnate.
Consolidating your debts doesn’t erase them, but it can make it easier to pay them back by combining them into one payment with a lower monthly cost that doesn’t affect your credit. By consolidating debts, you deal with a single creditor and can perhaps get a loan with a lower interest rate. This process can be done by a debt consolidation company that will take responsibility for negotiating the new loan, collecting the payments and paying off your previous creditors.
It simplifies the repayment process, allows you to reduce the size of your repayments and can help improve your cash flow position.
Keeping the true nature of your business’s debt problems to yourself will only cause more stress and pressure on you alone to fix it. You don’t need to let every employee know, but telling a few trusted colleagues can help lessen the burden, and they may be able to offer help and guidance during this stressful time which could result in a better outcome than if you tackle it alone.
Alternatively, professional advice can be invaluable in this kind of situation. Business mentors or an insolvency practitioner can help you plan the best course of action for getting out of debt.
For more guidance and advice about going insolvent, Hudson Weir Insolvency Practitioners can help.
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