Facing business debts can be a challenging situation for any entrepreneur.
It’s not uncommon for businesses to have business debts due to various reasons such as operational expenses, investments, or unexpected financial setbacks.
However, having business debts doesn’t mean the end of the road. There are several steps you can take to address and manage this situation.
It’s important to assess the extent of your business debts and create a detailed overview of your financial obligations. From there, consider negotiating with creditors to potentially restructure payment terms or settle for a reduced amount.
Exploring options like debt consolidation or refinancing might also provide some relief. Additionally, implementing tighter financial controls, revisiting your business model, and focusing on improving cash flow can help you gradually reduce and eventually eliminate those debts.
In this context, we’ve delineated a few straightforward measures you can adopt to assist you in accomplishing precisely that.
Look your debts in the face
It’s crucial not to simply ignore the issue but rather approach your business’s predicament in a rational manner.
Primarily, you must endeavour to accurately gauge the extent of your owed debt and to whom it’s owed.
Certain debts will demand immediate attention. Illustratively, priority debts could encompass:
- business rates
- utility invoices
- rent and mortgage disbursements
- tax liabilities
- outlays to key suppliers
- bank borrowings
- any type of loan backed by personal guarantee
Communicate with your creditors
Sustaining an open channel of communication with those you are indebted to is imperative.
Elaborate on your circumstances and the measures you’re taking to rectify the issue.
They could potentially provide valuable guidance.
At the very least, this approach might alleviate their concerns.
Furthermore, this strategy could enhance your negotiations regarding feasible payment terms within a designated period.
Moreover, it could potentially diminish the likelihood of them initiating formal measures to reclaim their owed sums.
Involve your directors and senior managers
Should there be fellow directors within your enterprise, it is essential to promptly inform them of any critical circumstances relating to indebtedness.
Your role involves setting a precedent, exuding assurance, and actively seeking an escape route from these challenges.
This is a juncture where the senior leadership can demonstrate their expertise and contribute to devising a resolution.
Additionally, rallying your staff’s support is vital to ensure a united effort.
As a sagacious individual once articulated, ‘crises should never be squandered’.
Seek expert guidance
For businesses grappling with debt-related challenges, a variety of resources are at your disposal.
It’s prudent to promptly seek professional guidance once you discern a predicament arising.
This article explains how to get free debt advice from a wide range of expert sources.
Moreover, our Finance Hub dedicates a segment to delivering valuable insights tailored to businesses grappling with indebtedness.
Explore further into:
- settling outstanding debts
- adept debt management
- comprehensive comprehension of indebtedness
- enhancing your cash flow Recall, the quicker your actions, the likelier the chance for resolution.
However, exercise caution in heeding advice from individuals lacking the requisite experience or qualifications such as unqualified accountants.
Improve cash flow as much as you can
There exist several steps you can consider taking to promptly enhance your cash flow management.
It might be beneficial to cultivate a ‘cash culture’ within your business as well.
These actions encompass the following:
- Trimming avoidable expenditures
- Ensuring timely payments from customers
- Engaging in supplier credit negotiations (within limits that don’t harm your rapport)
- Holding lower inventory levels
Naturally, the most appropriate course of action hinges on your specific circumstances.
Should you possess the support of a certified accountant, they could potentially provide valuable business counsel. Delve into more details in our article, “How an Accountant Can Aid Debt Management.”
Explore ways to raise funds
You might want to contemplate generating funds to settle your debts?
Undoubtedly, this isn’t a straightforward task, as a debt-free business usually presents a more appealing investment opportunity compared to one grappling with financial troubles.
Yet, you could consider the following avenues:
- Seeking loans from friends or family – although this might strain those relationships.
- Liquidating assets – as creditors might accept this to secure at least partial payment, potentially yielding more than in the event of business closure.
- Exploring the prospect of a new investor – If your business is undergoing a temporary setback but is otherwise viable, this option warrants examination. However, it’s likely that the investor would demand a substantial equity share in your enterprise.
- Evaluating peer-to-peer lending or equity crowdfunding – These options hold potential if you seek either a structured debt raise at a fixed interest rate over a predetermined duration (via peer-to-peer lending) or the sale of a stake in your business through equity crowdfunding. It’s vital, though, to seek independent financial counsel before proceeding with either path.
Find an insolvency practitioner (if you need one)
If the situation suggests that your business might struggle to maintain its financial stability, you might have to contemplate the possibility of closing it.
For the closure of a limited company grappling with debts, legal obligations dictate that you’ll require the expertise of a local insolvency practitioner.
It’s worth noting that local insolvency practitioners don’t solely focus on overseeing liquidation (comparable to bankruptcy for partnerships or sole traders); they also possess the competence to facilitate business revitalisation.
If you believe that such services are necessary, it’s advisable to search for a reputable local firm recognised by professional bodies, preferably with pertinent experience in your sector.
Read more: Ways to reduce business debt
Read more: Struggling with debt? Why you should talk to your lender
Read more: 10 practical steps to help resolve debt problems
Frequently asked questions
Yes, If the result is positive, you may want to pay off your loan whereas you might want to hold off if it's negative.
If a business Cannot pay its debts a creditor can petition to wind-up a company, ultimately forcing it into liquidation. This is a step commonly taken by HMRC, although it is also available for banks owed monies under a bounce back loan.
If a business has a lot of debt your limited company can be liquidated ('wound up') if it cannot pay its debts. The people or organisations your company owes money to (your 'creditors') can apply to the court to get their debts paid. Should I pay off business debt?
What happens if a business Cannot pay its debts?
What happens if a business has a lot of debt?
Conclusion
In conclusion, when your business is facing the challenge of debt, it’s important to remain proactive and focused on finding viable solutions. Recognizing the severity of the situation and seeking professional guidance are essential first steps.
By exploring strategies such as debt consolidation, expense reduction, and open communication with creditors, you can begin to chart a course towards financial recovery.
Utilizing the expertise of local insolvency practitioners can provide invaluable insights tailored to your specific circumstances. Remember, the key lies in taking decisive action and considering a range of options to navigate through this difficult period.
With determination and careful planning, you can make informed decisions to steer your business back on track to financial stability and success.
Call to Action
If your business is in debt and you’re wondering what to do, don’t hesitate to take action. Take the first step towards finding a solution by completing our online enquiry form today.
Our team of experts is here to provide the guidance and support you need to navigate through this challenging situation. Your financial well-being matters to us, and we’re committed to helping you explore options and regain control. Start the journey towards a debt-free future by reaching out now.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.