Business owners use many different titles and generally manage areas of their business that are not their primary specialty. While many large organizations have dedicated departments and are full of experts, most business owners do not have the luxury of having customer service representatives, sales and marketing managers, and finance professionals to provide the company with debt management services professionals.
Financial professionals working with business owners understand that debt, when properly managed, does not always result in insolvency. In fact, when used properly, debt management is an effective tool that helps companies in good and difficult times.
Just as a personal credit card can be beneficial or harmful depending on how it is managed, the company’s debt can also have positive and negative impacts.
For example, many people are shocked when they learn that Apple has accumulated almost $100 billion in debt – despite having $230.2 billion in the bank. Why would a company take on all this debt if it had ample cash reserves? For Apple, the answer is simple: taxes.
Apple’s $230.2 billion is currently in overseas accounts, and as soon as it is brought back to the United States taxes would be applicable. Wanting to avoid such taxes, Apple is using various types of debt (long-term bonds and short-term unsecured commercial paper) to fund massive capital returns.
In the past, Apple has lobbied for a US tax exemption – essentially a type of debt relief program – so that it can bring some of its $230.2 billion back to the states at a more favorable tax rate. If the tech giant brought $230.2 billion back into the US without tax breaks, they would be forced to donate approximately 25% to the IRS.
Although Apple is an extreme example, there are other (less extreme) ways of easing financial pressures on business by strategically managing debt.
Table of Contents
Looking For Business Debt Relief Is Not Equal To Failure
Almost 49% of small business owners find it difficult to manage their debts. Unless they are part of the financial services industry, most business owners are not experts in this area; however, they are responsible for making big financial decisions for their business. If you thought the difficult part of running a business was starting, you might be surprised to find that managing debt effectively can be even more challenging.
In the United States, many of us associate debts – both business and personal – with failure. It’s not exactly a topic we like to mention at a party. In fact, many business owners shy away from it when dealing with the day-to-day management of their business finances.
However, by actively managing debt, business owners can better control the health of their business as well as manage the vital cash flow that keeps a business strong.
When a company falls into tough times and strives to pay off lenders, the first solution that a homeowner can think of is bankruptcy. However, bankruptcy is not the only option for debt relief companies. In fact, it should be the LAST CHOICE you consider! Keep reading for other strategies you can use to manage debt and give your business your second wind.
Here are some skills you can learn from Creditors Relief
Pay some business debt – fast
While everyone has unique circumstances that lead them to seek relief from creditors, as a general rule, business debts become unmanageable for two reasons:
- A business is not bringing enough revenue to pay the creditors
- There are many lenders who are difficult to manage
Before you resort to external resources to get debt relief from the company, you should closely evaluate your business practices and see if you can make changes that help increase payments to your creditors so that you can repay some of the company’s debt immediately.
There is a good chance you will find a place to cut costs or a way to reorganize resources to free up your cash flow, and you can use some of that money to pay off some of your most urgent debt.
However, when you are thinking of ways to cut costs, it is important that you do not eliminate a part of your business that will hurt you in the long run. For example, if you temporarily eliminate marketing, you need to think about the long-term repercussions.
You may decide to keep your email marketing (because you’ve built a large database that would be a list if you canceled) but temporarily pause the social ads until you get some relief from your business debt. Think strategically!
Take steps to increase productivity
After analyzing your company’s operations for any quick fixes available to reduce costs and free up cash flow, you should focus on EFFICIENCY, Spend some time and find out how you can simplify your business by making your process more efficient. Improved efficiency leads to increased productivity, which will help you generate more revenue and ease cash flow problems.
Depending on the situation of your company, you may consider investing in technology that can correct flaws in your processes. Do an internet search on “business process improvement” and you’ll be amazed at how much you can learn! Smoother processes translate into increased production, which leads to more sales, which leads to more cash flow to pay off debt.
If you do not want to invest in technology, think of a skill development training session for you and your employees to help increase productivity.
Review your inventory
If you are an inventory-based company, cash reserves can dry up when you do not manage your inventory properly. When doing an inventory analysis, your goal is to stay liquid – you should be able to turn your inventory into cash so that you always have enough money on hand to pay your bills, employees, and creditors.
As a general rule, the faster you can turn your inventory, the higher your gross profits will be. It’s no surprise that stock shortages or late orders are a problem, but overstocked items are also a problem. The overstocked items take up valuable space and require extra trades, which is a waste of money in your business.
If you do not keep track of your inventory, probably during the analysis of your inventory, you will find many different areas that you can optimize. For example, if you, buy a large amount of a specific item because you get a lower price per piece, you need to understand how much it costs to store the item until you sell everything.
When you add the storage cost over time, it costs to store the item until you sell everything. When you add the storage cost over time, it may be more economical to buy a smaller item for a larger price.
If you have excess inventory that is draining your company, talk to your suppliers about how to recover unused items. If they offer you a lower price than what you paid, consider the cost you will incur by keeping excess inventory when making your decision.
Renegotiate credit terms with suppliers
Another strategy you can use to get some debt relief is to talk to your suppliers about better credit terms. If you can renegotiate the credit terms with vendors for those who are more favorable, you can quickly increase your cash flow and use the extra money to make payments to creditors.
When negotiating with suppliers, ask about the maximum credit period they can offer your company. If they can not increase their crediting period, they may offer prepayment discounts (which generally range from 2 to 10%, depending on the invoice amount).
Most suppliers are open to negotiations when it comes to a company’s credit terms. However, if you are not willing to discuss, it may be a good time to expand your supplier base. More suppliers equate to more competition so you can be sure that your business is getting the best deal possible.
If you’re getting daily billing calls, getting behind with payments, or even using personal resources to secure an advance for your business, you’re putting your company – and your future – at risk.
