13 Ways to Avoid Small Business Bankruptcy and Reduce Debt

When you originally established your company, the thought of having to cope with the stress of business debt is unlikely to have entered your mind.

After all, you did your homework and came up with an excellent business plan, one that helped you secure the financing you needed to get your company off the ground.

Unfortunately, in business as in life, there is a lot of uncertainty.

There may have been a decline in profits and an increase in expenses, forcing you to take on debt in order to keep the business afloat. “According to U.S. Bank research, a startling 82% of businesses that fail do so because of cash flow concerns,” writes Gretchen Schmid in a Fundera Ledger article. It’s important to keep in mind that while discussing cash flow, it’s not enough to merely consider the amounts of money coming in and going out. A cash flow problem could arise, for instance, if your invoicing system is used to run your business but your customers pay you after the due date of your loans.

Thankfully, bankruptcy isn’t the only option for debt recovery; there are several more to consider first. Filing for bankruptcy is a final step that may keep a small firm from going out of business after all other options have been exhausted. This is due to the various negative outcomes.

To begin with, you should expect to pay between $7,000 and $10,000 for legal representation throughout a small business bankruptcy case.

Then there’s the problem of repairing the harm to your professional reputation, which will reduce your access to key company resources like partners, allies, clients, and funding. Last but not least, your credit will take a hit.

Here are some debt-reduction strategies to consider:

1. Pay your creditors using the money you collect from debts that are owed to you.
2. Consult a credit counselor for advice. Credit counselors can mediate your relationship with creditors and lessen the harassment you receive from debt collectors, who may call at all hours of the day and use guilt or shame to encourage you to pay.
3. In order to cope with the mounting pressure in your life, it is recommended that you see a counselor.
   Worrying prevents you from thinking clearly, making it difficult to take the right action. Your feelings of depression and anxiety can improve after talking to a professional.
4. Try talking to your creditors directly. Rather than ignoring phone calls from creditors, it’s crucial to keep the lines of communication open. If you don’t give them a chance to help you, they won’t be able to. Explain the challenges you’re facing and see whether a payment plan is possible. In cases of extreme hardship, the settlement amount may be reduced.
5. Make a list of your debts and rank them in order of urgency to determine which ones to pay off first.
6. Learn your company’s fixed coverage ratio, which takes into account all of the business’s fixed obligations.
   Knowing how much money is coming in will tell you whether or not you can afford to meet your financial commitments; if you can’t, you may need to shut down.
7. Look for opportunities to reduce spending. Any vendor services that aren’t crucial to keeping your firm going should be cut off immediately. Consider the monthly fees you’re forking over for various web-based advertising tools.
8. Stay away from adding any more debt.It’s possible you’ll need to reevaluate your spending to make sure you aren’t wasting money on any frivolous business expenses. In order to save money, you might have to stop a subscription or choose an alternative service. Perhaps you pay for nightly visits from a cleaning crew. Getting rid of this service, reducing their frequency of visits, or switching to a less expensive cleaning staff are all options.
9. Depending on the debts you have, you might be able to combine them into one payment. This will make it simpler to streamline your monthly budget and save money. That’s great news for your credit score, too.
10. Think of strategies to boost sales. Some approaches to increase revenue include increasing leads to attract more customers, increasing rates, and expanding cross-selling and upselling opportunities.
11. Sell any non-essential assets. Consider your options for selling any machinery, tools, or office furnishings that are no longer needed.
12. Debt consolidation may be an option. According to Investopedia, this occurs when a previously highly-financed corporation takes advantage of the present period’s drastically reduced interest rates to restructure its debt. As a result, the company’s bottom line will benefit from lower interest costs and lower monthly payments, and the company’s cash flow will improve.
13. Work with a commercial debt collection company like Graystone Partners. These firms will go after the companies that owe you money and collect on any past-due invoices or unpaid judgements you may have. This revenue can then be used to pay off your creditors.