For those who own small businesses, having a good work ethic, great product or service, hardworking employees and more is oftentimes not enough to prevent you from running your business into debt. The fact of the matter is that debt can sometimes be an unavoidable part of running a business. As a matter of fact, debt can sometimes be good, but on the flip side, it can also be detrimental. Such is the double-edged nature of business debt.

The key in all of this is making the right and informed decisions about what type of debt your business should incur, the terms of the debt and other important matters that ensure that yours is a sensible or positive debt profile.    

All the above points, for instance, are factors that can help your company avoid business bankruptcy and being blacklisted by various financial instructions if things don’t quite work out with your business.

Another important piece of information to convey about business debt is that, where possible, you should avoid personally guaranteeing a business debt at all costs. The reason for this is perhaps self-evident. Any business loan or debt that you personally guarantee means that if for whatever reason, the business is not able to repay the debt, then you, as the personal guarantor will become liable to repay the debt. This situation, for the most part, defeats the purpose of creating an LLC, or whatever business entity your business is formed under since there will no longer be that personal liability protection that such entity is meant to provide.

Having said that, here are five main ways to manage your small business debt:

1. Work with a reliable attorney

Perhaps one of the most important things you can do with regard to managing your small business debt is to ensure that you work with a reliable small business attorney, especially before signing any contracts with your creditors.

Be sure to find a reliable business attorney to look over all the contract terms being proposed by the party you are considering taking the loan or credit from. A good small business attorney should be professional, affordable, experienced and with an established track record of representing the interests of small businesses like yours.

2. Consult a financial expert

Another important thing to do in managing your business’s debt is to ensure you consult a financial expert to help you determine the best solutions available for managing your business debt. While a financial expert might be an added expense your business would rather avoid, the benefits they bring to your business far outweigh whatever cost you would need to incur in securing their services.

Some of the value that a financial expert brings to the table include helping you keep track of your business finances, helping you shop around for the best deal in terms of the best, cheapest and most friendly credit terms, as well as possibly helping out with your accounting (if they are qualified to,) all of which can help you be on top of managing your debt.

Most financial experts are often experienced in handling various types of business debt complications, which makes them the perfect addition to your financial team.

3. Pay the debts in installments

You should also consider paying your debt in installments. This type of payment has been used for various years, and it’s a common technique used by most financial institutions today. To be specific, you want to pay the loans gradually and in relation to the finances and funds available to address the debt. A good recommendation for you would be to consult with the parties you owe to agree on a customized payment plan. Ensure that the agreement is well documented and the presence of a local business lawyer to ensure that no regulations are compromised.

4. Use a financial plan

There is nothing better than having a coherent financial plan to manage not just your debts, but in fact all of your finances. More specifically, a financial plan is important since it helps you to keep track of your inflow and outflow of funds, as well as any necessary projections thereof. A good financial plan is not only focused on the short-term situation of your business, but it also focuses on the long-term perspective as well. More so, you want to be as transparent as possible during the development of this plan, to ensure that you don’t miss out on any important debt repayment factors.

5. Cut costs

If the debt is becoming somewhat difficult to repay, then you might also have to reconsider cutting down on some costs. While you may have to give up some privileges and unnecessary expenses in the business, the overall benefits of cost-cutting will be so much more beneficial. The added benefit is that this might only be a temporary situation, up until you are able to repay your loans. With that being said, avoid over-cutting on costs, since this might compromise business operations and even the motivation levels of your employees at the company.

In Conclusion

Taking all things into account, there is usually not a lot of room for poor decision-making when it comes to managing your small business as poor decisions can easily kill a business. That being said, there are fewer decisions that can kill a small business faster than a poor financial decision, especially one that lands the business in debt.

So as previously stated, debt is not a bad thing if it is properly structured and utilized, and it can be a good thing that can take a small business to greater heights. On the flip side, it can also cripple and spell the end of a business. So any small business owner will do well to follow the above guide in helping to manage their small business debts.