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11 Dec 2013

How to Dig Out of Debt and Revive Your Business

Every small business owner has dealt with his or her share of debt, but with tighter lending rules some borrowers are struggling to stay out of bankruptcy court. It seems like since the "official" end of the recession, everything from health care to raw materials have been getting more expensive, which has placed an undue strain on entrepreneurs. The New Year is a good time to take a long hard look at where your business is financially and what you can do to dig out of debt.


Thankfully, the need for bankruptcy protection has decreased significantly since 2010, but a bankruptcy lawyer can still help the struggling small business. The Colorado Springs bankruptcy law office of Stephen Swift offers debt relief for small business owners who want to get a fresh start through a Chapter 7 or Chapter 13 bankruptcy filing. But there are still some steps that can be taken to avoid this. Here are some methods recommended by Entrepreneur Magazine from an article entitled "6 Ways to Dig Out of Debt."

Attack unnecessary costs

Take steps to identify what has contributed to the explosion of your company's debt. For example, if customers aren't paying on time consider ramping up collection efforts, or if your expenses are too high then consider relocating to a less expensive office space. Sell unused equipment or ditch a costly phone system. You may be surprised at how much money can be saved by simply eliminating expenses.

Create a new budget

If your company's current budget isn't working, then consider starting from scratch. Create a new budget that addresses the immediate needs of your business, with the goal of correcting your financial dilemma. In this new budget, be sure your current revenues more than cover your fixed costs, and then allot a portion of the budget for variable expenses. Financial planners and accountants recommend that whatever is left over is used to pay down debt. This means paying more than the minimum payment on credit cards. Also, if you are not currently using accounting software like MS Money or QuickBooks, now is the time to start doing so. These inexpensive programs can be a great way to stay on track with your new budget.

Prioritize your payments

Just as you would with your personal accounts, tackle the highest-interest debt first. More than likely, this will mean focusing your energies on paying down credit cards but remember to pay off any debt that you've personally guaranteed for your business. If a supplier or creditor can come after your personal assets, these debts should be a top priority as well.

Talk to your creditors

Sometimes it is beneficial to speak with your creditors directly, letting them know that your business is in financial hardship. Many of them will offer a hardship plan that has better payment terms, or you could request a reduced settlement amount. When you speak with a creditor, make it clear that the more flexible they can be, the faster you will pay off their debt; but be sure you keep up with your end of the bargain. As any bankruptcy lawyer will tell you, the worst thing a business owner can do is to set up a repayment plan and then default on it.

Consolidate your debt

Whenever possible, try to consolidate several smaller loans into one loan with a lower interest rate. Not only will this allow you to reduce monthly costs; it will help you dig out of debt without harming your credit score. If possible, consider combining several shorter-term loans into one longer-term package.

Seek advice from professionals

Negotiating with your creditors can be very stressful at times; especially if the creditors are uncooperative. If this is the case, consider asking for help from a credit counseling organization. Many of these nonprofit organizations will only offer debt-management services to consumers, but there are a few that will work with small business owners as well. For more complicated debt problems, a credit counselor may recommend speaking with a Colorado Springs bankruptcy attorney.

Photo Courtesy of David Costillo Dominici / FreeDigitalPhotos.net

Stephen H. Swift

Managing Attorney
Law Office of Stephen H. Swift, P.C.

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