by Tina Martin
When a small business gets into debt, it's critical to the long-term financial health of the organization to remedy the situation as soon as possible and get the company back on a strong fiscal track. This can be a stressful time, so call in experts as needed to help you strategize. Dr. Carl Forkner is a consultant who can help you analyze your objectives and make informed decisions for your business.
Manage Your Budget
Your budget should be gone through with a fine-toothed comb, line by line. It’s critical to identify and eliminate all but essential and contractual expenses. Your objective is to ensure you aren't spending a penny more than you need to until you get back on track. A bookkeeper, financial advisor, or accountant can assist you. If there are certain expenses you can't reduce or eliminate, investigate whether you can negotiate some fees. For example, you might be able to get on a repayment plan with creditors, reduce the time of a contract, or possibly even buy out contracts with vendors to eliminate some debt.
Create a Business Plan
If you haven’t already written a business plan, do it now. A business plan will guide you in mapping out all essential operational functions of your business, including your financials. It will provide prompts to assist you in analyzing your market and your revenue streams and help you make informed financial projections and decisions. A business plan is also necessary if you want to apply for a small business loan or grant. If you don't already have a limited liability company or an LLC, now is the time to form one. An LLC has tax advantages, which means you could owe less money when it's time to file. You can handle the LLC paperwork yourself, hire an attorney to do it for you, or your best bet, use an online formation service like Zenbusiness. LLC rules vary from one state to another, so check yours in advance.
Make an in-depth analysis of your business model to identify new product or service streams that could help you increase revenue. For example, you might consider ancillary services that complement what you're already offering. This might mean an advertising agency also begins to offer public relations services, or a mechanic begins to offer car washes or tire sales. This type of approach allows you to augment your business in a way that could be more profitable, and inject cash into your budget. Also, make sure that you're offering standard market pricing. If you're overpriced or underpriced you could be hurting yourself. Check out your competition to ensure you’re setting yourself apart in a meaningful and profitable way.
Plan Next Steps
Getting into and out of debt is a tough but valuable learning experience. Make an honest assessment of what got you into financial distress in the first place as the first step toward getting your business back in the black. This will give you better odds of prospering in the future. You may find some changes to your operational structure, product line, or service levels will be necessary moving forward. Consider reaching out to local small business development centers or the Senior Corps of Retired Executives (SCORE) to ask about business mentoring or consultation services that can help you identify the best financial and operational practices in your industry.
When caught early and managed correctly, small business debt doesn't have to be the downfall of your operation. According to the Federal Trade Commission (FTC), it’s important to react quickly, stay in touch with your creditors to protect your credit score, and reach out to other qualified professionals as necessary to help you get past the issue and move your business ahead.
Dr. Carl Forkner is a community advocate, helping shape the future of business and education. Reach out via email for more information.