Even the best-made and most realistic business plan can be knocked off course by a freak occurrence. An unexpected bill comes in that hits your cash flow. A key piece of machinery breaks and needs to be repaired or replaced. Business loans and cash advances can bail out a struggling business, but they can also get a business into trouble. High interest rates and mounting fees can leave business owners with few options.
Despite business bankruptcy rates being at their highest since March 2013, shutting up shop is not inevitable. Debt restructuring provides a viable alternative.
Debt restructuring involves creating a strategy to reduce and renegotiate delinquent debts in order to improve liquidity and continue operations. There are several advantages to restructuring business debt. Consolidating debt could lead to lower interest rates, reducing the cost of debt as a result. Restructuring debt into a single payment can also free up cash and make it easier for business owners to manage their finances.
With these benefits in mind, let’s look at how to restructure your business debt.
Recognize there is a problem
The first step is to recognize that your business has a debt problem. Given that you are reading this article, the chances are good that you are already concerned about your business debt. If not, there are several ways to tell if debt is threatening your business.
- Poor cash flow. This is the number one sign that a business is carrying too much debt. If too much revenue is being spent making debt repayments rather than buying supplies, it’s time to look at your debts.
- Calculate your Debt Service Coverage ratio. This is a ratio used by banks to determine whether they will lend to businesses. A business’ DSC is its monthly operating profit divided by total monthly debt repayment obligations. Banks require a minimum of ratio of 1.25, so if yours is significantly lower, there may be a problem.
- Regularly check your accounts payable. If your accounts payable is increasing disproportionately to your revenue or bank balance, make sure that debt is not the cause.
Once you recognize that there is a problem, you can take steps to restructure your debt.
Approach creditors yourself
Some business owners like to face the problem head on. This will lead them to negotiate directly with creditors to increase payment periods, ease credit terms or forego late repayment fees. For small debts, this can be a successful strategy. While it may be effective, however, it is also inefficient. In order to reduce debts of any significance, a business owner would have to successfully negotiate with every single creditor. For a business that has multiple debts, this strategy is incredibly optimistic.
Use a debt restructuring company
Rather than attempting to handle the issue themselves, some business owners turn to expert debt restructuring companies. These business debt professionals are experts at dealing with creditors and can help companies find the best solution possible. This could be reducing business debt repayments or it could be improving cash flow. Ultimately, they will do everything possible to stop your business from closing.
By working with a professional debt restructuring company, like Creditors Relief, business owners are relieved of the burden of having to work with creditors and debt collection agencies. Business owners are able to focus on what they do best, while debt experts focus on what they do best.
Prove your company’s hardship
Creditors will be unlikely to accept a reduced repayment amount unless you or your debt restructuring company can make it clear that they are very unlikely to receive the full amount. Proof in the form of numbers and figures will be key. Draft a hardship letter that explains the problems your company is facing and support these with figures from your bookkeeping that validate your claims. This can then be used by yourself or your debt restructuring company to persuade creditors to settle for a partial repayment.
Remember, if at any point you feel uncomfortable speaking to creditors or you are unsure of the next step, reach out to a business debt professional. Companies like Creditors Relief are experts at negotiating and restructuring debt and know how to work with creditors to get the best results. Don’t put your business at risk; turn to the experts for help.
Our business debt experts offer a free phone consultation when you call us on 877-312-6478 today. They will listen to and understand your circumstances before formulating a budget that you can follow immediately. If you are happy to move forward, our experts will then identify which debts we can settle and restructure, negotiating with creditors to make this a reality.
Get in touch today and let us help your business.