Getting rid of your business debt can be tricky, time consuming and stressful, but it’s important to try if you want your business to continue thriving. Debt is a pretty common thing, and most people and businesses have a little bit of it, but how you choose to handle yours will make all the difference. Even though it may not look like it now, your business can be debt-free as long as you have a solid plan to deal with it and commitment to that plan.
The following are just a few tips to help you think realistically about your debt and to come up with solutions.
Create a Budget
Even if you think you have a good mental picture of all your business debts and expenses, putting it in writing will give you a clearer picture of what your business debt really looks like. Start by making a list of all the monthly business expenses you have, and then compare that to the monthly income.
Any money that remains after expenses are covered is money that can either go back into the business, or used to pay off debt. If you aren’t confident with your number-crunching skills, then it’s recommended that you hire accounting services that can help ensure accuracy.
Pay Your Taxes
Even if you feel overwhelmed by your debt, it’s important to still take care of other important finances, such as paying your taxes. Not paying your taxes to try and catch up on debt will put you at risk of receiving a Director Penalty Notice, which will automatically make you personally responsible for your business debt.
Prioritise the Debt
For all your loans, credit cards and other types of debt, arrange them according to the interest rate of each. This way you can concentrate on putting the most money towards paying the debts with the highest interest rates first.
When you are facing a serious debt crisis, it’s important to tighten the company belt a little bit and buy only the things your business needs to continue running. Anything else is an extravagance, and is using up money that could be helping to eliminate debt.
Negotiate the Debt
Contact your creditors and lenders to see if you can hash out a new debt repayment plan. In the best-case scenario, you may be able to have the balance reduced if you agree to pay it in full.
Another option you have to make your debt more manageable is to consolidate it. By doing this, you take all your short-term loans and bunch them together into a longer-term debt that is much easier to handle, and this is called refinancing. This is a great way to get control of your debt and pay off creditors quickly so that your business’s reputation will stay in tact. Talk to your existing financial institution or find a new one, and talk about refinancing your debts.
File for Bankruptcy
Declaring bankruptcy is a common way to protect your business from creditor pressure. This involves passing control of your assets to a trustee, who will then use them as effectively as possible to pay your creditors back. After the creditors are happy, and your restrictions on doing business lapse, you can start again from scratch. Obviously, you only want to consider bankruptcy as a last resort, as it will greatly hinder your business operations or shut them down completely.