Business Debt Advice – How To Get Your Business Out Of Debt

If your company is struggling with debt then it’s not alone – many other companies are in exactly the same situation and most are looking for business debt advice.

Of course, as the director of a small company, your firm is likely to be the main thing that you have put all of your effort into over the past months and years and you will want to avoid shutting up shop at all costs.

With that in mind, below are six ways to pull your company out of the hole and start to look towards the future;

1. Cut costs and sell anything possible

Your first step to get out of business debt should be to pinpoint the cause of the issue – identify those parts that sparked the initial problem and attack them head on.

For example, your expenses may be high and with a growing debtors book they are proving impossible to keep up with.

If this is the case, you need to consider altering collection terms with customers and investing more time into chasing those that haven’t paid on time.

What ever the cause of the debt there is probably a solution. If you can’t see the cause it may be wise to get a business advisor to have a look, sometimes an impartial pair of eyes can spot things that the directors can’t.

After pinpointing and addressing the root cause you need to look at any expense that isn’t absolutely necessary.

Where possible these should then be cut. For example, could you cut down or office space? Do you need that costly phone system?

Another way to quickly boost cash flow is by selling unused equipment or things that are no longer necessary to run the business.

2. Reconsider your company budget

Of course, you have probably considered all of the above. If the debt seems to keep rising even after you have brought your costs and equipment back to the bare minimum, then the budget probably isn’t working.

Budget should be based on the company’s current financial situation; revenue should cover all fixed monthly costs. Variable costs (for example, cost of stock) should then be accounted for within the budget. Whatever’s left should then be largely used to minimise the debt level.

Our best advice on budget control is to utilise accounting software – some tried and tested examples include QuickBooks and Sage.

3. Debt payments should be prioritised (to a certain extent)

Get out of business debt by exercising restraint and avoiding paying off smaller amounts first, however tempting this may be.

Your highest priority should be to pay the debt accruing the highest rate of interest – of course most of the time, this will involve paying down credit cards first.

You should also be aware, though, of any amounts that are personally guaranteed by yourself.

We have unfortunately found that many directors aren’t aware of personal guarantees that they have provided, with the most common culprit being company overdrafts.

Any amount that has been personally guaranteed will be collected from the guarantor if the company is unable to pay; this means that enforcement could be brought against personal assets if it is  left for too long. Check your signed contracts if you are unsure.

Important note about preferential treatment

It should be noted here that once your company is insolvent, showing preference to one creditor over another by paying them first can land you in trouble.

As long as you have done the maths and can see a light at the end of the tunnel, then prioritising creditors is a good bet.

However, if you feel that it is very close to the line and there is a possibility that the company may need to enter an insolvency procedure, you should be very careful with this.

Once a company is in liquidation, preferential treatment comes under misfeasance and could result in personal liability of all company debts, or even disqualification.

If you are unsure whether to prioritise creditors, just give us a call on 0800 975 0380 for some free, tailored advice.

4. Talk to your company creditors

Explaining your situation to your creditors can go a long way. Often, the directors have been in a similar place themselves and will be willing to work on a plan to help you.

Asking if they have a hardship plan in place is usually the best way to secure better payment terms. When we say better, we mean better for everyone – the creditor would rather receive payments in smaller chunks than not at all!

We have found that the reason that most creditors resort to enforcement proceedings is due to lack of communication from the debtor.

Making it clear to the company that you will be able to pay the debt quicker if a reduced amount is offered usually has a favourable outcome – just avoid making the matter personal and let them know that they are not the only creditor.

Our best advice is to ensure that you can uphold your end of the bargain while compiling a plan. If a payment plan has been drawn up and is then defaulted, creditors are much quicker to jump to enforcement.

5. Consolidate all finance

Any loans that contribute to your fixed costs should be combined as far as possible in order to get out of business debt.

Many companies have several company loans that are being repaid monthly; consolidating all of these amounts into one payment should reduce monthly costs without having any effect on your or your company’s credit rating.

Of course the aim here is to assemble several short-term loans into one longer-term package.

6. Ask for help

Trying to re-negotiate terms with creditors can become stressful and all-consuming; if creditors are not co-operating, then you will need to seek advice.

Many people ask the advice of their accountant and unfortunately we have found that a lot of inaccurate or out-dated advice has been given in these cases.

This is not necessarily down to any bad intentions whatsoever, but just due to the fact that accountants are not necessarily insolvency experts.

At Forbes Burton we are very happy to discuss your options with you, whichever area of your company needs to be worked on…

Want to speak to someone?

We hope that this post has helped to generate some ideas on how to get out of business debt. If you are still feeling unsure of what you need to do after reading it, then give us a call on 0800 975 0380 for some free, confidential advice or let us undergo a full business review for you.

Always be aware that if you are the director of a limited entity, the company is a ‘person’ in its own right and its finances should therefore not have any effect on your personal finances or credit rating at all.