Business debt advice: 17 tips to avoid becoming an insolvent company

Running a company is stressful.

Business is full of peaks and troughs and, no matter how experienced we think they are, sometimes it’s hard to see the wood for the trees.

 

If you’re currently running your own business and it’s either in debt or you’re concerned about keeping out of the red – you’re not alone. Thousands of businesses struggle to make ends meet each and every month.

 

When insolvency issues start to show up on the horizon, they can often get in the way of an otherwise good enterprise.

 

Luckily, we’ve got some useful and practical business debt advice for you – advice on avoiding unnecessary debt and keeping your costs down.

 

We’ve got 17 actionable tips that you can use today to help stop your company from becoming insolvent.

 

You’ve got a million-and-one jobs to do running a company. We get that and we know it’s incredibly easy to take your eye off the ball. Before you know it, creditors, debtors and the taxman will all be getting in touch and requiring your immediate attention.

 

So this is your action plan to keep you and your business on the straight and narrow road to future success!

 

Action 1 – Speak to your creditors

 

Business debt isn’t something to be ashamed of. 

 

Many companies actually need to have manageable debt in order to operate optimally. Business is all about income and expenditure, so debt is a common thing.

 

With that in mind, be upfront with your creditors.

 

Tell them about your financial situation and your honesty might be rewarded. They might have been there themselves and may have hardship plans or offer some kind of payment relief that might just save your business.

 

One word of warning however; just make sure that you can keep your end of any deal. The worst thing you can do is arrange a payment plan with a creditor and then default on it.

 

Action 2 – Brainstorm

 

To effectively troubleshoot issues within the business, you need to know it inside out. Maybe you think you know how everything operates, but perhaps you’ve been too close for too long.

 

The 10,000 feet high view always lets you see the bigger picture.

 

Make a list of what you perceive to be the strengths and weaknesses of your business – and take your time when doing this. Brainstorm your finances and collect some thoughts on where your debt issues are coming from.

 

If your business has incurred a debt via something obvious such as an unpaid invoice, make sure you still do this step. 

 

Most businesses can leak money in a number of different areas. Look out for issues that seem to be cropping up a lot and are detrimental to your profit levels.

 

Action 3 – Be positive

 

This is really important.

 

Keeping a clear head will be crucial to your chances of getting out of any financial difficulties.

 

If you start to visualise your future success, your confidence will be renewed as well. Whereas, coming into work every day under a cloud of self-doubt and pity with low energy levels, then you may as well be waving the white flag.

 

Practically speaking, people will pick up on your negativity and nobody wants to do business with a negative person. Your body language should promote total respect, trust and positivity.

 

Action 4 – Be laser-focused on increasing your cash flow

 

There are three main ways to increase your cash flow so that you can use any extra monies to pay off some of your debts.

 

The first way is to increase productivity. 

 

Finding new ways to generate additional revenue or becoming more efficient at what you already do is a sound investment. Also, renegotiating terms with vendors can accelerate your ability to pay down debt through extra savings.

 

Lastly, if applicable, monitor your inventory levels. Monitor your stock and make sure you’re not losing money by storing redundant items. If you can, work with suppliers that offer consignment inventory or rights of return for unsold goods.

 

Action 5 – Share your thoughts

 

It’s said that a problem shared is a problem halved. Try and talk to someone who can offer an impartial view of what’s going on that maybe isn’t necessarily someone connected to your business.

 

Are your worries legitimate? Is there a simple solution that you’re missing? Perhaps even hold a meeting with your staff – maybe they can bring some valuable opinions to the table as they will have a vested interest in helping you.

 

Action 6 – Make that business plan much more flexible

 

Always revisit your business plan at least once a year.

 

Don’t be afraid to change it, adjust targets or tweak processes. Nothing in business stays the same. 

 

As such, business plans should not be set in stone. We all learn by our mistakes – think of a business plan as a roadmap rather than a blueprint.

 

Even with the best roadmaps we sometimes have to take detours. In fact, maybe your business plan was flawed from the outset? If that is the case, then maybe your financial issues could actually be seen as a blessing in disguise.

 

Action 7 – Look closely at your products or services

 

Start to examine your products or services at a granular level – is there an issue with what you’re selling?

 

Perhaps you’ve had issues with faulty goods? Have you been let down by a service provider which means you’ve ultimately let down customers?

 

Maybe your computer system should have been upgraded years ago or maybe your marketing approach needs to be dragged into the 21st century. 

 

You will only find out this and more by looking at each process and product as closely as possible.

 

Action 8 – Take on a partner

 

Perhaps you’re not the best person to resolve your business’s problems? Putting pride to one side for a moment: we’ve all got different skill sets and nobody is the best at everything, even in their own business.

 

Why not think about taking on a partner in your business? Thousands of successful companies are created from the result of partnerships and yours wouldn’t be the first to go down this route.

 

Don’t be precious about your business. Initially you could get the ball rolling by advertising the position or maybe even speaking to a financial advisor for some impartial advice.

 

Action 9 – Get professional advice

 

If you’re becoming overly worried about your company becoming insolvent and no amount of business debt advice is helping, then speaking to a government-regulated service like the Citizens Advice Bureau that can get to know the exact details of your situation may help.

 

A good business debt advice service will advise you on how to deal with any creditors, avoiding crippling interest rates and averting painful fines that late payments tend to attract.

 

They will also be able to show you how to rebuild a damaged credit rating and how to maintain a good score. If you absolutely need to take out some kind of consolidation loan to wipe out those higher interest debts, speak to a financial advisor before signing on any dotted line.

 

Action 10 – Create (and stick to) a budget

 

Approximating your monthly budget (or not budgeting at all) is a recipe for disaster. 

 

Thinking about your finances and cash flow, allocate a budget for different areas of your business and stick to it.

 

If you haven’t got an accountant on staff then maybe consider getting some accounting software to help you keep track of comings and goings. But if necessary, go old school. 

 

Grab a pen and paper and keep track of everything you buy across a period of time. You might be surprised by the results.

 

Action 11 – Consider rewarding your quickest-paying customers

 

It always seems unfair when a business – particularly a start-up or an independent trader – sells a product or service and then has to go  through several hoops in order to get paid.

 

Unfortunately, it’s a fact of life for most businesses. Some people hate owing money and settle their debts quickly, others don’t. 

 

If you feel a little helpless, why not offer your best customers a discount or rebate for swift payment? When promoted properly, this could have a positive knock-on effect on the rest of your client list.

 

Action 12 – Look at your staffing costs

 

No one wants to lay off staff, but unfortunately it’s a risk whenever there’s a downturn.

 

Outsourcing work, even if it’s only temporarily, can sometimes be a good option for a business that’s dealing with short-term issues and wants to reduce the element of financial risk.

 

There’s little doubt that employing a permanent team is cheaper, but you should only consider this if your business’s future is looking relatively secure.

 

Action 13 – Claim interest on late payments

 

Every penny counts, especially when you’re facing difficulties or even possible insolvency.

 

You’re permitted to claim interest at the Bank of England base rate, plus 8%. That’s calculated on a daily basis for each day your payment is overdue. 

 

While you must outline such an intention in your terms and conditions, it can be enough to deter third party companies from delaying any payments. Especially if you follow through. 

 

Action 14 – Evaluate your assets

 

Do you have any assets that could be sold in order to raise funds and increase cash flow?

 

Maybe you’ve got outdated equipment that you could get rid of, old product lines to shift or, if you’re really lucky, unused but valuable land to sell.

 

Action 15 – Organise your debts

 

When you’re faced with a mountain of business debt, it’s important to attach some sort of priority to each debt. Rightly or wrongly, some items are more important than others.

 

Write down everything you owe and to whom. Arrange them in order of interest rates then always attack the debt with the highest interest rate first, because that’s the one that’s costing your business the most money.

 

Once you pay this one off then begin the process again and target the next most expensive and so on.

 

Action 16 – Consolidate your debts with a loan

 

Taking out a loan so that you can cover off all your debts with one payment might make life easier. It shouldn’t affect your credit rating and, psychologically at least, it will feel like you’ve got less people hounding you.

 

Do your research before proceeding, though and make sure you can pay it back. 

 

Try calculating your debt coverage ratio. One way to do this is to divide your net operating income by the interest and principal payments of the debt.

 

For example, if your net operating income is £25,000 and you have debts totalling £21,000, then your debt coverage ratio will be 1.19. Banks will typically consider a ratio of 1.15 and above to be optimal. Anything less and you’ll have to consider another alternative.

 

If a loan is the way to go, it’s also worth future-proofing your debts by taking out a loan with a fixed interest rate so you have some certainty on the amount you will repay.

 

Action 17 – Serve your best customers first

 

When a business has built up an unsustainable debt or is facing insolvency, time clearly takes on different importance.

 

It’s vital that you make the most of every day and squeeze maximum efficiency out of your business.

 

You’ve got to continue trading, otherwise how else are you going to pay off your debts and avoid insolvency? The question is, how are you going to trade? What’s your plan? Well, when it comes to dealing with customers, prioritise the ones who pay you the most.

 

Money talks and right now it talks even louder.

 

 

So there are 17 things that you can do to help ease your business debt situation.

 

You don’t have to do them all immediately. Not many could but make it your mission to pick one right now and take action today.

 

You could also get some advice from us anytime you want with a free initial consultation no matter what your situation is. Just get in touch and we’ll find a time that’s convenient for you.