This week’s post is a guest post on the topic of debt and small business. Whether you are an employee or a small business owner, managing debt and keeping it to a minimum is a key factor for long term success.
With the onset of 2012, the lenders have already tightened their reins on the borrowers as well as the lending guidelines in order to reduce their risk to be subject to defaults on payments.
During the last quarter of 2011, there were many small business owners who were straining under the burden of growing high interest debt. According to the Automatic Access to Court Electronic Records, a total number of 8544 business organizations filed bankruptcy throughout 2011 and this figure saw a 565 increase from the same time a year ago.
While there are debt relief firms that can assist the business organizations to get out of debt and also stay out of it, bankruptcy is often the most sought-after option as they want to start afresh.
As bankruptcy stays on the financial records for 7-10 years, you should try your best to avoid such a fate and take help of some DIY get-out-of-debt steps. Here are some of them.
Curb unnecessary costs and release cash
The first thing that you need to do as a business owner is to identify the part or the departments of your company that has landed you up in debt and then attack them head on. When the customers aren’t paying back on time, your expenses will become too high and if you want to avoid all this, stay more stringent with your customers. Consider increasing the collection efforts so that you may be able to release cash and thereby attend your high interest debts. Selling off unused equipment may also be a good idea.
Prioritize your debt accounts
As a business owner, you have to tackle the highest interest debt first. Nothing can have a worse impact on your business finances than accumulating interest rate on debts. Unattended debts can give a serious turn to your business and therefore, take immediate steps to repay your high interest credit card debts or loans so that you can soon start repaying the next high interest obligation.
Re-examine your business budget
It is most likely that you have been following a budget in order to keep your finances on track. Since you didn’t achieve success with this budget, it’s time to re-examine your budget. Allot a portion of your budget to all the variable costs like the manufacturing materials. Keep track of your pennies so that you know where you’re spending your hard-invested dollars.
Negotiate with your creditors
Refraining from communicating with creditors is a very common habit among the business owners who are in debt. But if you’re wise you will certainly negotiate with them so that you can easily repay your debts without having to fall back on the other debt obligations. Request a hardship payment plan through which you can repay your debt in easy and affordable monthly payments.
Consolidate your debts
You can also get help from a debt consolidation company through which you can consolidate your debts into a single monthly payment. Tell them the hardship that you’re going through so that they can negotiate with your creditors and lower the interest rates on the loans and thereby facilitate the monthly repayment procedure.
In Conclusion:
Whenever you find your business organization accumulating debts, you should immediately take serious steps to contain them. Follow the debt relief steps mentioned above and also hire an accountant who can take care of your business finances so as to reduce the possibilities of incurring an unnecessary burden of debt obligations.
About the author:
Rick Murphy is a contributory writer associated with the Debt Consolidation Care Community and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles.
To get debt related help visit: Debt Consolidation Care
photo credit: xJason.Rogersx
About Stephen Borgman
Twitter: martyinmaui
says:
Great advice … I can especially relate to the point about negotiating with creditors. When I was in direct sales I found it especially difficult to help representatives who fell into debt with their businesses. The company I worked for had a number of great programs to help in these situations – the problem was the representatives would not return calls or respond to any attempts to communicate. Really unfortunate because they not only lost out in terms of their opportunity to earn good money, but their credit was adversely affected if the account had to be written off – which they often were.
marquita herald recently posted..Are You Using the Power of Self-Motivation to Achieve Your Dreams?
Marquita, I’m personally going through David Ramsey’s Total Money Makeover, which is a system for paying down debt while carefully tracking and self monitoring my own spending. Having gotten into debt from a business venture, I think that denial and fear of looking debt in the face is what keeps people from reaching out to get the help they need. Thanks for sharing your great story and experience.
The credit card companies have it set up for you to fail. It’s easy to spend and near impossible to get out from under them. I don’t think we’re out of the woods by any stretch of the imagination. The credit card companies are the next big target for a bail out as people default on their credit cards.
We’ve curbed our cc spending to a minimum for monthly business expenses and gas. Everything else gets paid in cash.
Thanks, Stephen, for putting this out there. Very important information for all to absorb.
RICK
Rick Lelchuk recently posted..2012 – Wishing You A Year of Total Discomfort
Rick, that’s a very interesting perspective: that credit card companies would be the next targets for bailouts. I can’t say I’d want the bailouts to go in their direction!
I love your example of paring things down to the minimums. I’m currently on David Ramsey’s Total Money Makeover program. I like the idea of using cash: that’s the next step to reduce spending.
Stephen,
I am NOT in favor of bailing anyone else out. We saw how well it’s worked in the past. It’s time for us to take our licks and let the marketplace re-set itself. Unfortunately, there is no one in Washington with the stones to let this happen. No, the artificial propping will continue. UGH!
RICK
Rick Lelchuk recently posted..Because Life is More Than Just a Job!
Twitter: KevinMartineau
says:
Debt is such a huge monster in our world today but it is a defeatable monster! I like what Rick has to say about minimizing cc use and using cash. This is something that my wife and I have been doing for the past year in some areas (food mostly) and we are moving to cash in almost everything. This helps make things much more finite – when the cash is gone it is gone!
Kevin
Kevin Martineau recently posted..4 ways to teach your kids to value integrity
Kevin,
I love the image of the “defeatable monster.” Slaying the dragon!
RICK
Rick Lelchuk recently posted..Because Life is More Than Just a Job!
Kevin, thanks for the input. Yes, spending cash only is the next thing to do on my list. Also, at the encouragement of another friend who is doing the same, it’s probably best for me to leave my debit cards at home.
I no longer take my credit cards to any seminar or meeting. They might have a sales table in the back and I’m so weak. ROFLOL!
Rick Lelchuk recently posted..Because Life is More Than Just a Job!
Good point, Rick! I actually have some friends who challenged me not to even carry debit cards with me, because just having that piece of plastic makes me much more likely to spend.
Amazing tips! I had no idea that you could negotiate with your creditors until I saw a program on TV the other night, it was about having some expertrs helping families come out of debt, and they managed to negotiate their debt to half!
Anna recently posted..Dental treatment – everyone needs it sooner or later {???}
Twitter: blondishnet
says:
I rarely use my credit card. Mostly just buy something small once in a while and pay it off just to build credit. However, I was taught to pay with what you have, not with what you do not have. It makes it less frustrating to have to deal with creditors/ debt collectors in the end.
Nile recently posted..Blondish.net Podcast – Blogging and SEO
Nile, whoever taught you those lessons taught you well. Now, if only our government could learn the same lesson!
Great advice Stephen! I learned years ago from my brick and mortar business to keep my overhead low and my money in my pocket. So many people used to tell me to expand to a larger place. I watched people do this and run themselves out of business. Same applies to online business. I follow my budget, don’t get that knee-jerk reaction to the shinny objects out there. But mainly Keep Focused on my plan. Yes, I know it will take a longer time, but it is just like building a house. I want a strong foundation, Excellent quality of frame, inside, I want the best plumbing and electric, etc.
When building a business it must be strong to last, just like a building.
As for Credit Cards: I use it all the time to collect miles or money. BUT I pay off the entire bill at the end of the month. I have gotten burned in the 80′s with the Credit Card hype. Once you have learned that lesson, you NEVER go back again. I am conservative with what I purchase and make sure I have the back up money to afford it, or else I let it go!
Thanks for inspiring us with this information. So many will get set back when they over spend.
Blessings,
donna
Donna Merrill recently posted..Find Your Passion | Key Lifecoach Strategies
Donna, thanks for sharing! If nothing else, the recession we’re experiencing in the United States will hopefully drive people and businesses to practice healthier saving and spending habits. I’m glad to see that you’re already implementing wise spending habits.
My husband and I are just starting the Dave Ramsey’s 13 week training about handling money based on Christian principles. We are so excited and can’t wait to start it. In order to help our children and generations to come it should start with us. Thanks for sharing.
alicia@yboggle recently posted..Hello world!
Twitter: eldonbeard
says:
Hello Steve, this is good advice. I agree with Rick’s comment above – the credit card companies have it set up to entice people into spending and then paying interest with little hope of ever paying it off unless they make a conscious effort to do so. It’s a vicious trap that too many fall into.
Eldon Beard recently posted..Home Business Radio Network Launches
Eldon, thanks for pointing it out. Credit cards are like hunters in Alaska: they place a hunting knife, razor sharp, upwards in the ground, and coated with blood. The hungry worlf comes by, starts licking the knife, and loves the blood. As it does so, it slowly bleeds to death. Enough said.
Thank you for good tips! I was considering to stop using my credit card but it almost impossible because I use it to pay off my phone, cable, and the internet. I can not live without these 3 things.
Carol recently posted..Toronto Condo Market
re-examine your business budget and negotiate with your creditors are really good point…Every point is revels great result if we apply them…..
Thanks for this post………….
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