Nobody wants to deal with, much less hear about, corporate debt. However, unfortunately, it can arise when you least expect it. When this debt is linked to resources that have been absorbed to generate value for the business, it is less bad.
But this is not always the case and getting out of the red can be quite a challenge, especially when default occurs, for example. At this stage, searching for solutions can be risky, as you could make the situation even worse.
Business debt can happen to small, medium and even large companies. And seeing your business in the red is not an integral part of any entrepreneur’s dream.
In this article we will talk more about business debt and how to get your business out of the red, with tips and, mainly, how to avoid getting into it. Follow along.
Business debt: get out of the red this year!
There is no magic formula, but with a little organization it is possible to get out of this business debt and get out of the red this year or, at least, keep your accounts up to date and very well on track. The first thing to do is identify the key point that caused the debts.
A good diagnosis of what caused this debt and what is wrong is a fundamental part of the solution. Based on this identification, the necessary actions will be taken (or at least initially planned) to try to resolve the problem.
But it is necessary to carry out an in-depth assessment of all of your company’s finances. Pro-Business Management Systems can help a lot at this stage, since all of the company’s finances will be properly recorded and organized in the system.
Once you have mapped incoming and outgoing values, and are then able to visualize what remains of all this at the end, you will have an objective view of your company’s financial reality, even if this balance is negative.
Company debt with bank
Banks can be considered the biggest creditors of most companies. This is clear, since these institutions have exactly this purpose: to give credit to those who need it. However, they practice very high interest rates.
Therefore, it is not always easy to deal with banks when the company’s debt to the bank is very large. The best thing to do is always try to renegotiate the debt, where you will have a fixed percentage of interest applied to the installments.
Postponing or, worse, delaying debt or even defaulting is a much more complicated path. Remember that for the bank you are a customer and as such it makes profits. So, don’t be shy about claiming better rates on your trading. Anticipating receivables is also a good alternative.
Company debt with suppliers
A company cannot live without its sales and, worse, it cannot live without its suppliers, who come even before sales. As in the case of banks, for your suppliers, you are a customer.
Of course, it is not always possible to negotiate a company’s debt with suppliers, but this should be the first thing to do: renegotiate. This way, your supplier will understand that you want to pay them, but to do so you need to continue with your business.
If negotiation is not possible, advance payment of receivables with the bank may also be a solution. In more serious cases, it may be necessary to turn to a company specializing in financial recovery to pay off the debt.
4 Reasons that lead to business debt
There can be countless reasons that lead to business debt and below we will mention 4 of the most common. Check out:
- Bank Loans
Overdrafts and bank loans are the main villains when it comes to debt. Often, a businessman takes out a loan to create working capital or even to buy equipment and/or expand his business.
This type of loan is even justified in the medium term, as long as the planning has been carried out with maximum criteria. But you should not confuse a bank loan with capital, which can cause catastrophic damage to your business, often irrecoverable.
- Labor Complaints
It’s a burden that every business owner knows they may face, but is never fully prepared for. Therefore, it is very important to correctly follow all current labor rules and laws, so as not to be caught by surprise. This type of debt is serious and sometimes difficult to resolve in the short term in labor claims.
- Financial organization
And are your company’s accounts going well? Do you, as a manager, know everything that is coming in and out, do you have full management of your inventory, accounts payable and receivable, taxes and everything else? A company’s financial health largely depends on its organization.
Even if your profits, apparently, do not seem to justify a judicious financial organization, not having one is a mistake that can be fatal and can also lead to serious business debt at any time.
- Taxes
Taxes despite being heavy, should not generate debt. This is because, it is assumed, and that your company has already accounted for all of them. If your accounting control fails, however, you could end up in business debt.
Therefore, accounting management is vitally important to a company’s financial health.
How to get out of business debt?
The magic for getting out of business debt is certainly present in a single word: reorganizing your finances. To do this, you will need:
- Identify the causes of the problem. Make a careful mapping about it.
- Cut expenses. There’s no way around it, you’ll need to eliminate some expenses to reduce them and be able to see a greater flow of money.
- Integrate your company’s sectors. Have a business management system to not only help you organize and get out of the red, but also help your company avoid corporate debt.
- Renegotiate your debts. This is essential for you to start over with extra breath.