Small businesses are usually more nimble than larger companies. This can provide a distinct advantage in negotiating business partnerships, starting projects or entering into service agreements with vendors.
The disadvantage of being a small business is that a single financial hit – the loss of a major client, for example – can be enough to put a smaller company in the red or even force it to shut its doors.
Many small business owners are comfortable with debt as they seek to grow their company. If an unforeseen event causes them to sink deeper in debt rather than pay it off, the situation can quickly become unsustainable.
Solutions to small business debt are not that much different than resolving personal financial problems. Here are some ways to pay off business debt:
The snowball strategy – While paying the minimum monthly amount on all accounts, the snowball strategy calls for paying extra on those accounts with the smallest balances. Once those are completely paid off, move on to the next-smallest balance and add in whatever amount you were paying toward the debt that is now paid off. Seeing accounts go to zero is psychologically encouraging.
Cutting costs – Take a hard look at what expenses can be cut. Are there business trips that do not provide a return on investment? Are you leasing equipment you can do without? Is it possible to cut staff or reduce their hours?
Debt consolidation – As with consumer debt, it’s always wise to see if it is possible to consolidate multiple accounts into a single account with a lower interest rate. This saves on interest and simplifies your life.
Create a budget – Another personal finance must that is just as important for small businesses. Be realistic and put down on paper your plan to pay extra toward debt when you know revenue is increasing.
Renegotiate vendor contracts – Many creditors will renegotiate existing debt or future costs if they understand you are at risk of going out of business (and not paying them at all).
Filing bankruptcy – Filing bankruptcy allows you to discharge debt or restructure under a manageable payment plan. It’s not the first option a small business owner should consider, but it is the proper solution in some cases.
Working with an experienced bankruptcy law firm that can review your situation and recommend an effective course of action could be the most important step you take to save your business.