How to Get Out of Business Debt

Debt is a way of raising money to fund business growth and expansion. It’s great when you can finance new projects without giving up part of the ownership. However, unsustainable debt puts a business at risk of bankruptcy. Too much debt can also interfere with your emotional well-being when creditors are continuously calling, writing, and threatening action against you.

Getting out of business debt takes time, discipline, and perhaps even advice from the financial coaches at Desert Financial and Tax Services. Here are some steps on how to best improve the situation.

Restructure Your Budget

Unsustainable debt often arises when a business takes out a loan to finance capital expenditure or operations. However, if the business can’t generate enough revenue or keep its expenses below such revenue, it cannot make good on the loan principal repayments. This is referred to as insolvency.

If you have higher expenses than revenue, then your first course of action should be to scale down all non-essential expenditures. If certain business units are not profitable yet, you should consider shutting them down.

Avoid Taking on New Debt

Do not take on new credit unless you really need to. It’s best to put a moratorium on acquiring anything new on credit until your business can do so without risking its financial position. Cash payments can be a way to constrain your spending habits so that you’re less likely to buy things unless there are enough funds for them.

Communicate With Lenders

When in debt, it’s better to communicate your position to creditors instead of avoiding communication. During your discussions, explore the possibilities of having interest rates reduced, being granted a moratorium, or the repayment periods extended.

Create a Repayment Plan

You should create a plan on how to repay your debt. The discussions you’ve had with your creditors will inform the plan. Prioritize short-term debt that attracts higher interest rates than the others. Once you complete repaying those, you can begin paying more than the minimum required monthly repayments for lower-interest loans.

Try Debt Restructuring

If all efforts to get out of debt are failing and your business faces bankruptcy, you may hire a debt-restructuring firm. This is a company that will engage your creditors on your behalf to change the existing credit agreements. The debt-restructuring firm will take over aspects of your repayments, including setting up automatic repayments to creditors from your accounts. A debt restructuring plan is better than bankruptcy proceedings, as bankruptcy can leave a mark on your reputation.

Earn an MBA

If you’re struggling to get your business out of debt, an MBA could be the answer. An MBA can give you the practical skills and knowledge you need to manage your finances and get your business back on track. With an MBA, you’ll learn how to create a budget, how to negotiate with creditors, and how to make sound financial decisions for your business. You’ll also gain a better understanding of financial statements and financial reporting. If you choose to enroll in an online MBA program, you’ll gain flexibility as you’ll be able to complete the coursework at your own pace.

Foster Long-term Financial Health

The long-term financial health of your business can only come through proper financial planning. Capital expenditures should pass through rigorous capital budgeting analysis before approval, and you should only raise new capital when you have a clear plan on how the business will generate a return. Lastly, the business should abide by the overall and departmental budgets. As a manager, you must investigate variances in actual expenditure.

Get Help With Financial Planning

When you take steps like debt and budget restructuring, creating a repayment plan, and even earning an MBA, you can get your business out of debt. If you need someone to take a keen look at your business accounts and give advice on how to reorganize for a better financial position, contact a financial coach or adviser.