How can a private corporation or company reduce debt? This article will provide the answers you need.
It is a known fact that a business can never be free of debt. In fact, debt is one of the instrument of business growth and sustainability. But like every good side, there is a corresponding bad side to debt. Debt is a double-edge sword that is not handled properly, it could destroy a business.
Debt is something that has to be kept in check throughout the existence of a business. Suppliers sometimes permit businesses to owe money with Net 60 or Net 90 days. With Net 60 day terms, businesses are permitted to pay for an order up to 60 days after placing it, and with Net 90 day terms, businesses are permitted to pay due balances within 90 days of placing the order. Many businesses take benefits of every last day of those terms. When debt gets beyond control, a business must react, and there are certain things that can be done to reduce or totally eliminate those debts. Below are some drastic or necessary things to be done in order to be free from debt.
Six Practical Ways a Private Corporation Can Reduce Business Debt
NOTE: Reducing debt requires a sustainable action plan
When the rate of borrowing becomes excessive and the rate of debt uncontrollable, it can lead too much problems, such as:
- Running out of cash
- Inability to deal with unexpected costs
- Minimizing the value of business
- Inability to invest
- Losing the confidence of stakeholders
- Minimize service/productivity quality
- And so on……..
With the help of this article, you will discover various ways or ideas that will assist you minimize your business debt. There are six basic strategies that can assist you out of excessive debt, they are:
1. Minimizing costs.
There are two strategic ways to minimize costs:
- Making enough savings by cutting your expenses
- Make little reductions across the board
To discover high cost savings, concentrate on large savings first. Take steps to cut some expenses within and without your business. If you spend more on certain products that do not add to the bottom line directly or indirectly, then cut such an expenses.
2. Increasing your business income
There are many ways to maximize the amount of money flowing into your business, such as:
- Increase sales
- Raise price
- Alternative income discovery
For instance: renting out unused office space, selling advertising space on your website (e.g.: YPN, MSN Ad center, Google Ad center, affiliates) or in physical spaces that is available for you and also obtaining commissions from other organizations
3. Restructuring Liabilities.
Your ‘liabilities’ are all the amounts of money that you are owing to other people. Restructuring your company liabilities does not necessarily reduce the entire amount you own, but it can grant you more cash, more disposable income or decrease the amount of debt you require to provide working capital.
7 Ways to restructure your liabilities to reduce your debt include:
- Agree longer or scheduled payment terms with suppliers
- Secure ones (replacing unsecured loans) to minimize the interest rate
- Guaranteed loans (guaranteed by shareholders) to minimize the interest rate
- Repayments over a longer period of time
- Consolidated loans
- Shareholder funds
- Defer tax liabilities (this requires specialist tax advice)
4. Restructuring your company’s assets
Your assets are all those things that your business owns. This section of restructuring your assets as well includes disposing of assets. Examples are:
- Sell those assets that are unnecessary (e.g: surplus/old equipment, cars)
- Convert necessary assets into liabilities: sell in order to finance company and lease them back
- Factor invoices (this can minimize the value of the asset invoice, but raise cash)
- Use cash or investment to pay off loans
5. Raising more capital
More capital can be raised by:
- Discovering more investors
- Issuing more shares to current investors
- Obtaining aid and grants
Also observe your asset list and assess if it can be converted into assets of greater value. For instance, if you have a land, you can build more offices or houses on that land.
6. Exit the business
This is just like a final option after all other options have failed. If you find out that your company is overwhelmed with debt and there’s no way you can repay such debt, then you might as well sell your business to another corporation or individual with cash. You can choose to exit the business in the following manner:
- Selling the business as a going concern
- Going into receivership
- Selling off every of the business assets (including the goodwill of the business, e.g.: the client base) and making use of the proceeds to pay off the liabilities.
In conclusion, i believe these are the best and acceptable ways by which private cooperation can reduce debt, while increasing income and cash flow.