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According to the US Small Business Administration (SBA), among the most common reasons behind the failure of businesses is mismanagement of credit, lack of financing, and use of business money for personal purposes. Inadequate funds cause businesses to fall back on payments and have led to bankruptcy in a lot of cases.
Additionally, it’s now more difficult for a small business to demonstrate that they qualify for debt relief through Chapter 7 bankruptcy, thanks to the Bankruptcy Abuse and Prevention and Consumer Protection Act of 2005.
As a business owner, you need to educate yourself about all available debt management strategies to ensure your business is financially healthy. To keep your business debt at a manageable level, proactively work out payment schedules, reign in non-essential expenses and, where necessary, use a third party to restructure your debt.
This article briefly looks at two ways of dealing with heavy business debt: reviewing your budget and working with a debt restructuring firm.
Before you start dealing with your business debt, regain firm control of your business expenses. Consider making changes to your cash flow and financial plan if you begin falling behind on monthly payments.
Carefully review your income statement to understand your income versus fixed and variable expenses. Based on that, create a business budget that will guide your spending. Set aside enough money to cover your recurring expenses, such as money owed to your creditors, suppliers and landlord, etc.
Getting company debt help is a good idea. Consult a professional accountant or non-profit associations that offer free online workshops and tutorials on business budgeting. For even more efficiency, use accounting software to monitor your cash flow. Your budget review should not be a one-off thing. It needs to be done periodically so as to maintain control of your cash flow.
When business debt becomes overwhelming, seek the assistance of a debt restructuring firm. Professionals in these firms are equipped with the skills, knowledge, and tools to negotiate with lenders, suppliers, and collection agencies on your behalf. They arrange for an extension, renewal or revision of your existing terms of debt.
The process of debt restructuring will involve contractual agreements between you and the debt restructuring firm. You will be required to set up automatic withdrawals from your bank to make payments to your creditors.
Debt restructuring firms usually charge a monthly fee. However, restructuring your debt is cheaper than filing for bankruptcy. Other benefits include reduced/extended monthly payments, reduced/eliminated legal bills, less time spent dealing with creditors/collection agencies, and improvement of your credit in the long term.
When you are overburdened by business debt, seeking professional help is a far more effective solution than trying to deal with it yourself.
As you consider prospective debt relief companies, give preference to those that are willing operate within the time and payment requirements of your creditors. Be honest about the monthly payments you can afford to make to allow the firm to negotiate a settlement that suits both you and your creditors.
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