How Can I Build a Good Debt Management Plan for My Business?
The act of “debt management” covers a wide range of activities. If you’re a New Orleans or Louisiana small business owner concerned about your debt, you have many different avenues of debt management to pursue. These activities can include things like:
- Negotiating with creditors for lower rates
- Selling assets
- Consolidating loans
- Refinancing business debt
Is Bankruptcy the Right Course of Action?
The best course of action for your business depends on your situation. Some businesses run into temporary cash flow struggles that make it difficult to meet their regular debt and interest obligations. Careful budgeting and negotiations with creditors may provide the breathing room a business needs to make it through a difficult time.
On the other hand, some businesses face inescapable headwinds that make it difficult or even impossible to move forward as a going concern. Even in good economic times, once stable business may struggle. Consider 2016 and 2017 when a jaw-dropping number of big retail companies filed for bankruptcy. Companies like Payless, Sports Authority, Macy’s and RadioShack have since closed some or all of their physical locations. Those retail businesses either completely overhauled their business models or simply went out of business.
The root cause of their problems varied, but many of them had a common denominator: Americans were simply shopping differently. For some of those businesses, like Sports Authority, there was no restructuring out of the hole, but others, like RadioShack and Payless, were able to survive bankruptcy by embracing a new approach to retail sales.
As a rule of thumb, bankruptcy is a last resort, and you may be able to work directly with customers or vendors to avoid it. Your vendors or creditors may prefer to work out a deal to help you stay solvent rather than attempt to get what they’re owed through the bankruptcy process.
Refinance or Consolidate Your Business Debt
Defaulting likely isn’t your only option. Consider speaking with commercial loan providers about refinancing your business-related debts. Debt consolidation loans aren’t just for private individuals. Businesses can also find debt consolidation solutions that can help them make their liabilities more manageable.
Another tool that can be used by both individuals and small business owners is budgeting. Budgets are especially important for businesses with any kind of seasonality or predictable drops in revenue. The basic process for creating a budget is fairly straightforward:
- Determine your revenue
- Calculate your fixed costs (rent, payroll, insurance, debt payments)
- Calculate your variable costs (marketing, utilities, etc.)
- Subtract the costs from revenue and put together a profit and loss statement (P&L)
Your P&L will likely be different in certain months depending on seasonality. Being able to project revenue in advance, knowing how changes in business volume will impact your costs and budgeting for the unexpected can help you prepare for lean times.
A P&L and a budget that outlines all your business’s obligations is also a basic requirement for making tough business modifications. Seeing all your expenses in black and white can help you determine what can and cannot be cut.
No business owner likes to lay off workers, but if you’ve experienced a drop in revenue, it may be necessary to reduce your labor costs. If you own a restaurant that’s experiencing a drop in foot traffic, you should probably be reducing your regular inventory purchases.
A detailed budget can give you a bird’s eye view of your business, which may help you free up the money you need to make debt payments.
Downscaling your business is not an irreversible action. Countless businesses have gone through contractions and come out the other side leaner and more efficient, priming them for future growth. It may make sense to not renew leases, sell certain assets or cut your marketing budget temporarily.
Get Help with Business Financing from a Local Partner Who Cares About Louisiana Businesses
As a Louisiana-based federal credit union, OnPath FCU has a vested interest in the success of each of our members. We strive to find business lending solutions that work for our commercial customers, even when the business climate is less than ideal.
Call our commercial lending team at 800.749.6193 for more information.