Although choosing a loan over selling equity in a business can give an owner more control over their debt, if they cannot manage that debt then these efforts will end up being wasted, and this will bring the owner back to square one. While filing for bankruptcy has become an option for some business owners in the current economy to save their business, the long term damage done to personal credit scores and the business itself is irreversible. Instead, there are many methods a small business can employ to manage their debt and create powerful strokes for bolstering their solvency as a business.
Filling in the hole
As stated above, there are many alternatives to bankruptcy a business can take to bolster their financial solvency and escape the clutches of debt. The first method, and likely the most apparent to small business owners and individuals alike, is cutting unnecessary costs to free up cash flow issues. Here one should identify the issues that got the business into debt in the first place and resolve them head-on. For example, if customers are not paying on time then business owners should ratchet up the businesses collections efforts in a concerted attempt to eliminate this issue. Another useful tool for increasing the solvency of one's business to rid of debt is revisiting the budget. There are plenty of tools to help one work with their budget and identify realistic changes to save costs where it is feasible. It is important to keep in mind that the businesses’ revenues must cover more than its fixed monthly costs when formulating a new budget plan. After these necessary fixed costs are accounted, one can then allot certain portions of the budget towards variable costs like materials or accounting costs. Prioritizing debt payments addresses a business's debts that have the highest interest rates so to resolve the issue in the timeliest manner possible, and save the business money in the long term elimination of their debt expenses. It is also important to notify creditors of the businesses situation in an attempt to negotiate any reductions in the company's debt payments or reducing the overall debt amount. In this sense the creditors will be paid more quickly and accumulating interest will subside. Consolidating one's loans will also drastically reduce interest costs and allow a business to recover more quickly from having debt in multiple sources. Here monthly costs are reduced without harming one's credit and the businesses solvency even more. Lastly, seeking financial counsel from specialized financial services can help one negotiate with creditors in an attempt to resolve their businesses debt issues.
Client Bankruptcy
If a businesses' client declares bankruptcy the first step in the right direction should always be patience. While this direction may sound counterintuitive, there are a lot of parties with vested interests and other forces at play when a business declares bankruptcy which hinders the payment recovery process for that particular client. For instance, the scenario of liquidating remaining assets to various creditors is an enormous process that will take time to sort out the politics of who is getting what, where, and how. In the scenario of a client declaring bankruptcy there will likely be many other creditors waiting to recover their money as well, so the best route is to “take a number” and patiently wait to receive the funds. Although there are many types of bankruptcy, bankruptcy in general takes a general course, and there are lawyers, administrative expenses, and other professional services and parties influencing this course and whom have a vested interest in its conclusion.
After experiencing a client declaring bankruptcy, businesses should develop processes for screening clients by knowing their payment history so to prevent a future scenario from reoccurring. Second, improving the businesses’ accounts receivable management procedures can help to recover funds before a client goes bankrupt to just avoid the “take a number” process in general. Here one can get paid quickly without the hassle of collecting and risk of non-payments. “Immunization” measures will be crucial for the small business in the current economy, and one will benefit greatly in case the unexpected arises.
