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It has been a tough year for many businesses juggling lockdowns and a downturn in business operations. As a result, it is more important than ever for businesses to protect their future by safeguarding themselves from potential debt build-up.
Businesses should consider the following do’s and don’ts to help avoid unwanted debt build-up:
Create internal payment plans
Many people will throw money at their debts without having a structured plan in place. Instead of paying lump amounts to certain creditors, it is vital to have a plan in place, so that the payments are disbursed equally amongst the creditors each month.
Find opportunities to cut expenses
If you have a large amount of mounting debt, it may be due to outgoing expenses outweighing your income. This is a major cashflow issue, and it could be time to look at your monthly expenses and see what can be reduced or cut out completely. Look at what your major expenses are and see if there are ways to reduce these. Take a look at things like advertising, subscriptions, professional memberships and even office space. Ask yourself: what can you cancel, pause for the moment or downsize?
Read More: 10 ways to cut business costs
Refinance or consolidate debts
A simple way to eradicate debts is to look at ways to refinance or consolidate debts. We are experiencing record low interest rates, and if you can refinance or consolidate debt, it is a great opportunity to reduce the repayments on your outstanding debts.
Debts can cause a lot of stress for Directors, and they often don’t know where to turn for assistance. Asking debt assistance firms to assist with your debts is often the hardest part of the process but may be the answer to your debt problems. Many firms offer initial consultations during which can provide advice about what to do without you engaging them to assist.
Dig your head in the sand
Many Directors will put off the reality of mounting debt and won’t act until it is too late. If a business is experiencing cash flow issues and mounting debts that they cannot control, they need assistance, and if an unpaid debt is left too long, the consequences can end up far worse. Communicating with a creditor and arranging suitable payment plans can stop legal action and alleviate the issues. It costs creditors money to collect debts, so it is always best to be upfront about your situation.
Take out more credit
If you are already experiencing issues with your debts, do not continue to borrow if you cannot afford your current repayments. Unfortunately, many businesses will choose to take out further credit in the hope of turning their situation around, which often leads to the business failing.