But, if you notice the tide is actually starting to flow in the wrong direction, you will need to take action to address the situation.
And whilst there can be many reasons for business debt, the earlier you find a solution to manage the situation, the better your chance of staying in good financial health and safeguarding your business investment.
Here are some of the options you should consider:
Increasing your income
Though rarely easy to achieve, this is still the best and most obvious way to address a debt situation.
You could organise an eye-catching special event with free gifts and discounted offers. However, if you’re going to avoid spending more than you plan to recoup, you should think smart, call in favours, and set up reciprocal offers and discounts with neighbouring businesses.
It’s essential to minimise your outlay so that you can show a worthwhile profit at the end of the event.
And beyond one-off events, what else should your business be doing to pull in more customers?
Does your business really reflect all the latest trends in your sector? Or have you become a little complacent and set in your ways?
Whatever your business, to thrive and develop you must always be prepared to adapt to changes in your marketplace.
Ordering your debt commitments
If you find yourself committed to several debt streams, your first task will be to determine the order in which you should pay off your debts.
Some types of debt are far more expensive than others, so you must clearly understand which debts carry the highest interest rates.
Items such as credit card debt are usually the ones which will be costing you the most and also taking the longest to clear. Therefore, tackling these first will result in income savings long term.
By contrast, zero interest or low-interest debt can be far more manageable in smaller instalments, and if you haven’t already done so, then shopping around for the best possible rates to transfer or consolidate your high-interest debt will also help to reduce the payments required to service your debt.
Though not every type of loan will allow this, if you have the resources to pay off a little more than the minimum monthly loan payment, you should also target high-interest loans first.
If a loan account should have an interest-free period (perhaps the first six months), that will allow you a further opportunity to prioritise accounts which do charge interest.
Rework your business model
What should be of equal concern is how your business managed to get into such a serious debt situation.
To establish where your business went wrong you will have to carefully review your business planning. For instance, you may need to look at your business spending from a stricter ‘return on investment’ perspective.
Depending on your business activity, that could mean negotiating cheaper supply contracts, making do with slightly older business vehicles, or similar cost-cutting measures to prevent the unproductive overspending you can no longer afford.
Selling your business
If all other measures fail to improve the situation, then as a last resort you may have to consider selling your business.
Sometimes you may have simply lost your passion to make your business an enduring success. In such circumstances, it can be difficult to summon the resolve to work your way through the problem once a debt situation has taken hold.
The most practical approach is always to try and put your business into the best possible shape before approaching the market.
If you can demonstrate that – apart from your debt issues – the business still has real potential, then this is more likely to persuade a potential buyer there is some future in purchasing.
Your debt will inevitably reflect on the overall valuation of your business but showing the potential and continuing to manage your debt commitment – rather than just giving up on it – will certainly help you in trying to find a willing buyer.
Recovering from a debt position is always a challenge. However, once you recognise what is happening, the most important thing is to take steps to manage the situation.
This will get the momentum running in your favour and help you resolve matters to your best advantage.
By Bruce Hakutizwi, USA and International Accounts Manager for BusinessesForSale.com, the world’s largest online marketplace for buying and selling small and medium size businesses. Bruce has over 7 years’ experience working within the US business transfer marketplace connecting buyers and sellers.