5 Ways To Manage Business Debt

Spare Yourself Undue Stress

by Jerry Silberman

With the economy in turmoil and millions of people losing their jobs, small businesses aren't being bailed out like America's elite. Business closings have reached epidemic proportions. While there's no way to protect your business from every storm, you can spare yourself undue stress by responding faster to unforeseen problems. To quote Benjamin Franklin: "An ounce of prevention is worth a pound of cure."

Monitor your cash flow.
Cash flow is not the same as profit. Your business may be profitable, yet you can still face a serious cash flow problem. Cash flow is determined by comparing the amount of money coming into your company with the amount of money going out. Ideally, you should have positive cash flow. If your cash flow is negative, you'll need to draw on your company's capital to stay current on your bills. When the necessary capital is not available, your debts accumulate.

Collect what's owed to you.
All the sales in the world won't help if you can't collect your money. Slow or nonpaying customers can be a big part of a cash flow problem. You need a formal system for billing and contacting your customers. If that doesn't work, contact a collection agency or attorney to help. Trying to collect from nonpaying customers can eat up time and money that could be better spent growing your business.

Eliminate or reduce expenses.
This is a tough but necessary step if your business is going to weather this economy. Here are some areas to look at.

• Negotiate lower prices from existing vendors. First, do your research. Find out who else offers the products and services you need. You'll be surprised to find that many companies are willing to lower their prices to gain a new customer. This will provide you with leverage to lower your current vendor's prices or simply buy from new vendors.
• Negotiate extended payment terms. Perhaps more important than lowering vendor costs is negotiating a longer time to pay for the goods or services. When cash flow is tight, a 10% savings may not be as beneficial as an additional 90 days to pay.
• Stop using your credit cards if possible. Credit cards enable you to extend payments over time; however, unless you have an extremely low interest rate and carry a low balance, your credit cards could spell trouble for you because interest rates can be astronomical.
• Purge excess inventory, furniture, or equipment. If you need cash, you can return, auction, or liquidate things you don't need or haven't been able to sell.
• Cut back on employees. It is extremely common for small business owners to keep employees they no longer need or don't need as much as they used to. If employees are not necessary, as much as it may hurt personally, cut back their hours or let them go.
• Cut benefits. You may need to ask your employees to contribute more to their health insurance or phase it out altogether.
• Relocate to a cheaper location. With a glut of unoccupied commercial real estate turning some areas into ghost towns, you should be able to find cheaper space nearby or renegotiate with your current landlord.
   

Consider raising your prices now.
Many small business owners undercharge for their services because they feel they have to match or beat their competitors' prices. But the days of undercutting everyone and turning your product or service into a commodity are over. Circuit City learned that lesson the hard way. Here's the cold fact: It doesn't matter how much you make–it matters how much you keep. If you have razor thin margins, it's time to change immediately. Just charging 10% more could make all the difference in the world. Test different prices. Look at other companies that are charging more for the same product or service. 

Work your customer list.
We've worked with thousands of struggling businesses. Too many didn't have a customer list, and hardly any of the ones that did were marketing to them. If they were marketing, they had no way of measuring customer response. The worst part is that they had no idea which customers were primed to buy more or why they hadn't. If you don't have a customer list, create one today.

Jerry Silberman has 20 of experience helping small businesses reach affordable terms with their creditors and emerge from overwhelming debt within their means. He is currently founder and CEO of Corporate Turnaround, whose success stories have been profiled in The New York Times and BusinessWeek. Silberman has appeared on numerous media outlets as a featured expert and is co-author of the Small Business Survival Book. To learn more, visit www.CorporateTurnaround.com.