Falling Into a Small Business Death Trap

The idea of operating your own business is appealing. You get to be your own boss and make the important decisions. So you excitedly take out a business loan, start planning, and start turning your money-making dreams into reality. But sometimes passion is not enough to keep a business afloat. Mismanagement, lack of business experience and other small business mistakes may suddenly put you in the red. The crucial question then, is “How do I get my business out of debt?”

To prevent further complications that may arise in the future, it is crucial to prevent debt from piling as soon as the problem is detected. There are several steps that can offer relief in such situations.

See Where You Stand

Before diving into action, it is important to see where you exactly stand at the moment. How much do you owe, and how do you expect to pay for it? Also, it is best to understand the consequences of small management debt so that you may realize the impact that it can make in your life. What are the possibilities of you having to sell off your assets to settle debt? Is it already so bad that it may also touch your personal property? Are you at risk of having to sacrifice your own savings or assets in order to save your business? Analyze your payment priorities, and see if you are able to afford it as you are now. If not, you may have to explore further options in paying for your loans.


The reason you are struggling may lie on your periodic payments. It is possible that your current payment scheme is taking too much of a toll on your business. It may be forcing you to compromise on operations that could have improved your company’s performance. If so, you might want to consider spreading your bank loan on a longer term. The bank may require a higher interest rate to make the transition, but doing so may take a lighter load off your shoulders and allow you to move more freely.

You may also want to discuss payment terms with your creditors. Explain the situation, and see if they are willing on reducing their rates or stretching out payment deadlines. In the end, your creditors are more interested in ensuring collection from you and would rather settle on an agreement than risk a default.

It is wise to make a head start with confronting your creditors as well. Take action before they have to make demands from you, so that the negotiation process is more pleasant and likely to succeed.

Review Your Budget

Analyze your cash inflows and outflows. You may find areas that warrant improvement or changes. Taking a second look at your costs and expenses may help you identify sectors that could be reduced cost-wise or eliminated for good. Compare productivity reports with variable costs to check for discrepancies and review your fixed costs. Reviewing your revenue generation may also give you a clue about areas on which you can focus production or marketing and increase your income.

Cut Down Costs

After reviewing your budget, you may have found several things that need to be changed. For example, you find that one product line has an unnecessarily large amount on variable costs, pulling down your contribution margin. Reducing variable expenses will help you break even faster with less units required to sell.

See if your business has any unnecessary expenses or non-essential operations. You may be allotting a relatively large travel allowance for your employees, or you are employing more employees than you actually need for regular operations. You may also need to eliminate product lines that don’t make enough revenue to make up for operational costs. You can also talk to your suppliers about better deals. They would rather renegotiate than lose a regular customer. If allowed, you may also want to consider refinancing schemes.

There are many ways to cut costs, but it is important to ensure as well that doing so does not negatively affect your business’ performance.

Improve Revenue Generation

Revenue is an important factor in the business. It is the primary source of income which allows the sustainability of a business. It is therefore relevant that your income exceeds your expenses, as marginally high as possible. Improving revenues will keep the business running and ensure inflows that will help you pay off debt.

Know your target market. Be familiar with their preferences and model your pricing, product offerings, and marketing strategies according to their preferences and consumer habits. Offer markdowns, discounts, and better payment terms to appeal to your market. You can also set up loyalty programs to retain regulars.

If possible, advertise to stimulate sales. Review your unit prices and quality control to make products attractive to potential buyers. You may also need to review the selling performance of each product, eliminating the ones that only pull loses and focusing on items that generate the most revenue. Consider expanding your business to reach other customer types, or opt for wholesale or supplying. You can also sell off unneeded assets that unnecessarily take up space, maintenance costs and depreciate.

It is also possible that you may find other sources of income from your business operations. By-products can either be sold to other interested businesses, or can be processed further. Additionally, extra warehouse or offices spaces can be rented out for additional income.

Consider Debt Relief Services

Debt relief is the process of reducing and potentially eliminating debt. Nowadays, there is a considerable number of institutions that offer small business debt relief.

Small business debt relief programs focus on either business debt settlement or debt consolidation. When you owe several creditors, you may be spending a lot on monthly minimum payments, and such services will surely be beneficial to you.

Debt settlement concentrates on a client’s unique financial situation. The program then devises a plan suited to those circumstances, ensuring that the client saves as much money as quickly as possible based on the current situation in order to pay off debt. Small business debt settlement programs aim to pay back credit at reduced amounts and resolve the debt as quickly as possible.

Debt consolidation combines your different debts into one plan, to make payment easier and potentially reducing interest charges. It also presents the possibility of helping you avoid linking your debts to your personal property. However, as opposed to a debt settlement plan, this does not lower your total debt owed.

No matter which of the two you decide to go with, the expertise of a reputable company matters too so choose wisely.

When All Else Fails

Say you’ve attempted all the steps, but still find it your position extremely difficult. This is the time when you may have to allow your business to fail. It doesn’t mean surrendering all hope and allowing debt to take over your life. Instead, it means retreating honorably and preventing further casualties from happening in the future.

One method is to sell off your business and using the proceeds to pay off lenders. A successful sale will give you enough proceeds to pay creditors and protect your personal property. It is easier than having to sell of your assets and reduces the potential for future liabilities. Just make sure that your business is attractive enough and does not have too much obligations that can scare off potential buyers.

Another method is liquidation. By realizing assets, you can pay off the business’ obligations. This option also allows you to negotiate with your creditors about the distribution of your assets. They are likely to accept as litigation fees can be quite costly, and they would also be ensuring collection from you.

Being the boss of your own business isn’t necessarily a pleasant journey for everyone. Those green pastures may actually be a pitfall to failure. That is why in the case of small business debt, it is important to look at your position, consider all options and take action before giving up.


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