Running your own small business is challenging even when business is good. When your company starts to lose money, running a small business can seem next to impossible. Depending on your business entity, you may also have personal assets tied to the livelihood of your business. Even if your personal property is not liable for business debts, you still have a lot invested in your company.
You know if you could just pay off some debt, you would have a successful business again. Here are some ideas that may help you and your business reduce debt and start on the road to success again.
Cut costs and increase cash flow
Figure out which parts of the business caused your debt issues. Maybe you are paying too much for supplies or rent. Look for less expensive suppliers, renting a smaller space or consider moving your business online. If you do rent a smaller space or move online, sell off any unused equipment or furniture.
Reevaluate your budget
If your debt is growing, there likely is a problem with your budget. Your revenue needs to cover more than just your fixed costs. Your business needs to have some money left over for variable costs, as well as unexpected expenses. Having just enough money to scrape by is not an effective way to run a business.
Prioritize and consolidate debt
Whenever you pay off debt, you should always pay off the debt with the highest interest rate first. Additionally, if you have charged business expenses on personal credit cards, you should make paying this debt a priority. You do not want a creditor coming after your personal assets, if you default on payment. If you have multiple loans or debts on multiple credit cards, consider rolling all this debt into one payment. You will likely pay much less by consolidating your debt.
Negotiate with your creditors
It is possible to negotiate your debt with many creditors. According to Entrepreneur, you can ask for a hardship plan that could have better payment terms. You could also ask for a new payment plan or even a smaller debt amount. This may seem impossible, but if you clearly and calmly explain your situation they may be willing to work with you, particularly if you explain that this debt could lead to bankruptcy. In a bankruptcy filing, creditors would likely receive even less money toward your debt.
Consider getting outside help
You may have trouble negotiating with creditors, and if you do, you could reach out a credit counseling organization. There are a few nonprofits that work with small business owners, and these organizations will have more experience negotiating creditors. If your debts seem insurmountable, you might also consider reaching out to an attorney that specializes in debt relief. An attorney can advise you how best to move forward with reducing or consolidating your business debt.