Falling Under: 7 Ways to Prevent Your Business from Going into Debt

Lizzie Weakley

August 13, 2014

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With inflation skyrocketing and lenders hunkering down on options for borrowers, it can be tough to stay afloat as a business. Bankruptcy is certainly an option, but comes with so many negative side effects that many consider it, rightly, a last resort. Below are 7 ways to dig out of debt before your business goes down the drain.

1. Revise Your Budget
Obviously, if you keep accumulating debt, something isn't working in money management. Evaluate the business' current financial situation and devise a budget from there; don't operate on old information. Make sure revenues will pay for fixed monthly costs, then allot another portion for variable costs. There are many cheap or free programs available to help track budget.

2. Cut Superfluous Costs
Identify any money leaks that got your business into the situation and fix them immediately. These can be anything from unnecessary expenses to customers not paying promptly. No matter what they are, find out and fix them.

3. Talk to Your Creditors
Many lenders offer hardship plans, and will be willing to work with you to figure out a plan that accommodates your needs. If not, try requesting a payment plan or a reduced settlement amount.

4. Plan Out Repayment
If you have multiple debts, try to tackle the highest-interest first; leaving these accumulating interest may be the difference between staying afloat and drowning. If you have any personally guaranteed debts-- those that can affect your personal assets if defaulted on-- those should have high priority, too.

5. Consolidate Loans
Consolidating your loans will allow you to reduce monthly payments without damaging your credit. Ideally, you want to consolidate multiple short-term loans into one long-term loan, lowering monthly costs.

6. Look for Counselling
If creditors are resistant to working with you, it can be in your best interest to seek out a credit counselling organization. There are a few that will work with small businesses, though most work with individual consumers. For particularly complex situations, it's best to request a bankruptcy attorney's advice.

7. Hire a Financial Consulting Firm
Financial consulting firms like D Thode & Associates can offer a wide range of advice, from where to expand and hold back, to where to expend marketing dollars. If business is slow, they can help you identify, establish, and control your market, leading to an increase in sales.

Falling into economic hardship is a harrowing experience. Alleviating your burden of debt won't be instantaneous; hopefully these tips can help you on your way.