Sometimes you have to go into debt to start or build your business. It’s not necessarily a bad thing, but it can be scary, especially if you start falling behind on your payments. Ideally, once you’ve had a chance to build your business and leverage the resources you bought with your borrowed money, you’ll be able to pay off the debt and start making a profit, but unfortunately things don’t always go so smoothly. If you feel like your business is drowning in debt, here are some things you can do to get your finances back on track.

How to Stop Accumulating Business Debt

The first thing you need to do to get your finances back on track is to stop accumulating business debt. This is where a strong bookkeeping system really comes in handy. Not only can it help you identify debt your business might be accumulating without your knowledge, but it can also alert you to business expenses that are either not generating results or not getting used at all. Eliminating those expenses is the first step to managing your business debt.

Making sure you’re staying on top of your loan payments is another important step to stop accumulating business debt. If you miss a payment, not only will you have to make it up later, but you could end up paying more in interest, which adds to your debt, so make sure the person in charge of making those payments is reliable and knows when each payment is due.

How to Effectively Reduce Business Debt

Once you’ve stopped accumulating business debt, you’ll want to look at ways to pay off that debt. The tips from the previous step can help you effectively reduce your business debt by helping you to eliminate unnecessary spending, which should free up some extra dollars from your budget to pay off your debt. If you have the budget to pay more than your loan payment for the month, you should pay off as much debt as you can to reduce your business debt. Just make sure when you do so that you’re paying off the principal loan amount, and not just interest.

If you have multiple loans for your business, another way to reduce your business debt is to consolidate multiple small loans into one large loan. This can help reduce what you end up paying in interest, fees, and maintenance costs.

Is it Time to File for Bankruptcy?

If the debt is piling up and you don’t see a way out, it might be time to consider filing for bankruptcy, but first, let’s take a look at the difference between filing for bankruptcy and closing your business.

Filing for bankruptcy is not the same as closing your business. If you no longer want to run your business, or if the bills are piling up and you don’t see a way to get more revenue to make your business profitable, it might be time close down your business. However, closing your business will not eliminate your debt. You will still need to be able to either pay off your debt or negotiate with your creditors. Doing so will not require you to file for bankruptcy, but you should have a lawyer draw up the contracts to make sure everyone understands and agrees to the next steps.

If you can see a way to increase your business revenue, but you need help managing your debt in the meantime, it might make sense to file for Chapter 11 bankruptcy. This allows you to restructure some of your business debt and eliminate other debt, but it is not an answer to your cashflow problem.

The best way to avoid bankruptcy is a strong bookkeeping system. If you need a bookkeeping doctor to do regular checkups on your business finances to make sure they’re healthy, just fill out this form to get your FREE consultation. The best medicine is prevention, and that’s as true of your business’ finances as it is of a person’s physical health.