5 Steps To Managing Business Debt

By Jerry Silberman

CEO and Founder of Corporate Turnaround

With the economy in turmoil and millions of people losing their jobs, small businesses are feeling the brunt of the blow. Business closings have reached epidemic proportions. While there’s no way to protect your business from every storm, many businesses can spare themselves from undue stress by responding faster to the unforeseen problems we all face in the months ahead. To quote Benjamin Franklin: “An ounce of prevention is worth a pound of cure.”

1. 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 the cycle going in and out of your company. You should be able to know at all times how much cash you have on hand and what the business needs to operate.

2. Collect what’s owed to you – Slow-paying customers can be a big part of a cash flow problem. Collecting from them can eat up your time and efforts that could better be spent making sales and growing your business. That is where a collection agency can truly help you.

3. 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 with your existing vendors – First do your research. Find out who else offers the products and services you need. You’ll be surprised to find how many companies are willing to lower their prices to gain a new customer. This will provide you the leverage you need to stay with your current vendors. If they refuse, you’ll have found vendors that will sell to you for less.

¨ Purge excess inventory – Right now, you need cash. Spend the time boxing up and returning anything you don’t need or can’t sell.

¨ Stop using your credit cards wherever possible

– unless you have an extremely low interest rate and are carrying a low balance, every credit card you carry could spell trouble for you if you fall behind in payments.

¨ Pay yourself less – When you’re facing tough debts, you probably want to take more money out of the company and put it aside. Fight that temptation.

¨ Cut back benefits – As much as it may hurt, you need to ask your employees for higher contributions for health insurance or phase it out altogether.

¨ Cut back hours for your employees – You may need to work more hours to save more money. This could enable you to avoid laying off any of your employees. 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.

¨ Let some or all your employees go – As a last resort, letting employees go may be necessary for the business to survive.

4. Raise your prices now – Most small business owners undercharge for their services. Many are convinced it’s impossible to succeed unless they keep their prices low. 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 who are charging more for the same product or service.

5. Work your customer list – We’ve worked with thousands of struggling businesses. Here are some common traits: many don’t have a customer list; they barely market to their customers and when they do, they have no way of measuring the response. The worst part is, they have no idea which customers are profitable and which ones have stopped buying. If you don’t have a customer list, create one today.

I hope these tips help you through these tough times.

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About The Author: Scott Letourneau is the CEO of Fast Business Credit, Inc. When it comes to securing cash and vendor lines of credit and avoiding costly mistakes his company is the authority. For further assistance regarding the development of business credit go to http://www.FastBusinessCredit.com or call FBC at 1-888-313-6333 or 702-977-5246.