We’re currently operating in a very interesting economy. While many businesses are booming, it’s hard not to feel like we’re standing on a house of cards that could easily be blown away at any moment. If your business is struggling under the burden of massive debt, now’s the time to do something about it.
3 Steps to Take If Your Business is Drowning
When things get hairy and hectic, most of us have a natural inclination to retreat and ignore the negativity. For all intents and purposes, our initial reaction is to curl up in a ball in the corner of the room and plug our ears. But that only works when you’re three years old.
As a business owner with a company, payroll, customers, and financial obligations, you can’t afford to just sit back and hope things get better. You must move with purpose.
Here are some ways you should channel your energy:
1. Cut Costs
Start by cleaning up your balance sheet and cutting costs. Every business is different, but this usually looks like the following:
- Eliminate all discretionary spending. This includes any non-essential expenses that do not directly impact sales or revenue.
- Be more strategic when buying necessary materials, goods, or inventory. While you might technically get better per-unit prices if you order in bulk, now is not the time to load up on 1,000 units of an item when you only need 100. Purchase in smaller quantities and inquire about lower prices. It’s possible that your suppliers are also struggling at the moment; they may be willing to temporarily lower prices in order to keep your account.
- Find a cheaper credit card processing service. No business owner wants to switch credit card processors, but it could save you thousands of dollars per month (depending on how much revenue is handled through credit cards). Look around, get some bids, and see how the numbers shake out.
There are plenty of additional ways to cut costs, but following these three tips will allow you to get started. Start here and then get more aggressive if needed.
2. Increase Revenue
Cutting expenses is just one side of the equation. You also have to think about increasing revenue. Again, you have multiple options. Here are several low-hanging fruit ideas:
- Offer to bundle services or products for existing customers at a discounted price. In other words, if a customer is currently paying $50 for Product A and Product B also costs $50, you could sell a package of Product A and Product B for $75. The customer gets 25% off, while you get an extra $25 in revenue and still remain profitable on both.
- Look for subscription revenue opportunities. For example, getting 100 of your customers to pay $50 per month for a low-overhead service leads to $5,000 in additional monthly revenue for the company.
3. Consider Bankruptcy
If you’ve cut costs, restructured debt, and increased revenue but nothing seems to move the needle enough, it’s time to start thinking even more aggressively. Yes, that could mean filing for bankruptcy.
As attorney Rowdy G. Williams mentions, “Filing for bankruptcy shouldn’t be viewed as a weakness. It’s actually one of the smartest and most strategic things you can do when your back is against the wall.”
The key is to select the right type of bankruptcy. If you file for Chapter 7 bankruptcy, you’ll most likely lose the business. Under this type of bankruptcy, there’s no way to protect the property. All assets get sold, proceeds are used to pay off the creditors, and the business closes.
If you’re a sole proprietor (meaning your business is not a corporation, LLC, partnership, etc.), you can file for Chapter 13 bankruptcy. If your business is still generating income, this could be a good option. It may allow you to pay a lower amount on unsecured debt. If you set up your bankruptcy exemptions correctly, it could allow you to continue operating.
Finally, there’s Chapter 11 bankruptcy. This is the option that most business owners go with, simply because it’s open to partnerships, corporations, and LLCs. Chapter 11 is similar to Chapter 13 in that the business can keep assets and pay creditors through a repayment plan. However, it can be a complicated and drawn-out process.
Regardless of which option you pursue, we highly recommend consulting with a bankruptcy attorney to get expert advice and guidance on how to proceed for the best results.
Adopting a Proactive Approach
Some people are reactive and other people are proactive. As a business owner, you must be the latter. Proactive business owners almost always come out on top of the reactive ones. And in a situation where you’re drowning in debt, you have no other choice. You either fight back or you lose your business. Now’s the time to reach down deep and find the energy to win.
