GETTING YOUR BUSINESS OUT OF DEBT

When managed carefully, debt is a powerful way to raise capital. Governments and large corporations borrow money all the time to finance growth and expansion. You can also take a line of credit or a business loan to help your small business meet some financial obligations like purchasing equipment or hiring new employees.

Unfortunately, businesses don’t always perform as well as expected. You may find yourself unable to repay some business debts when hit by unexpected setbacks or as a result of poor financial decisions. Such debt can stifle cash flow and the situation can quickly spiral out of control putting your business at risk.

When your business is buried in debt for whatever reason, Portfolio Management Group can help you recover. We have put together several effective debt management strategies drawn from years of helping companies succeed. Read on to learn how you can get started pulling your business out of the debt hole.

Calculate exactly how much you owe

The first step in debt recovery should be reviewing your current financial situation. Before you can come up with a strategy to get out of debt, you need to figure out how much you owe and to whom. Take inventory of all outstanding loans to vendors, banks and any other lenders.

Assess whether you are able to meet the monthly payments by calculating your debt-to-income ratio. If the ratio exceeds 0.40, paying off your debts may prove problematic. You can renegotiate with some creditors and prioritize the debts with the highest interest.

Review your budget

Figure out where your money is going bygetting all the information about your business expenses and sources of revenue. Gather all your invoices, bank and credit card statements and other financial documents from the last few months. You should have a business budget with at least a year’s worth of data. This will help you identify trends that are driving down your business. You can get outside assistance from a great CPA to help you organize your budget and crunch the numbers.

Reduce expenses

After you’ve determined your financial situation and identified what is ailing your business, you can begin to make changes that will improve your debt situation. The first change should be cutting costs. You must eliminate unnecessary expenditure from your budget. You can also renegotiate product and service costs with your suppliers and employees.

Prioritize debt repayment

Use the money you’ve freed up through cutting costs to pay off your debt. Dedicate as much profit as you can towards debt repayment. This will not only help you get out of debt sooner but it will also protect you from interest and penalty build-up. Pay off high-interest debt first and debt that is critical to your business operations. Other debt repayment strategies that work include:

• Debt refinancing: This involves taking out a more affordable low-interest loan to pay off your original loan. This puts you in a more manageable debt situation.
• Debt consolidation: Like refinancing, you take out a loan with better terms like low interest to repay multiple loans. It’s hard to keep track of multiple loans since they have different repayment terms. Creating one manageable loan can help you get out of debt faster.

Improve your business knowledge

When you’ve made big business mistakes that have driven your business into debt, it could be time to get additional training to avoid repeating them. The cut-throat world of business is unforgiving and without the right skills and training to maneuver, failure is almost inevitable.

After you’ve put measures in place to save your business from crippling debt, it is time to focus on ensuring future success. Consider bringing in a professional like a CPA or consulting firm who specializes in restructuring and managing debt. This investment can be invaluable in potentially saving your business and teach you how to better manage debt. Improving your education is also an effective strategy you can implement. You can enroll in an online MBA program to develop your skills in accounting, strategic planning, economics, and corporate finance. An online program should give you the flexibility to continue running your business as you improve your knowledge.

Final thoughts

Debt is not a bad thing. If it’s manageable and you have a solid repayment plan, it can help grow your business and take it to the next level. It can also sink your business faster than the Titanticin quicksand.

If you think your business is drowning in debt and can’t stay afloat much longer, contact Portfolio Management Group Consulting today for a free, no-cost consultation on how we can plug the leaks!