Bankruptcy isn’t Your Only Debt Solution

We’re continuously surprised by how little most organizations know about their financial options in the face of seemingly insurmountable debt loads and dwindling financial statements. We don’t mean to sound judgmental when we say this. After all, most organizations don’t spend very long time considering the worst-case-scenario when they first form, and the level of economic education given to anyone these days ranks slim to none. If you’re unaware of your options, it likely isn’t your fault, but rather it’s a problem with business culture in general.

That being said, the sooner you can educate yourself on your organization’s many options for finding its way out of a crushing debt solution, the better.

When pressed on the issue, most organizations are only aware of one solution to debt, and that’s declaring bankruptcy. This fact pains us, as does the very idea of referring to bankruptcy as a debt “solution.” Declaring bankruptcy shouldn’t be considered an option except in the absolutely last case, when every other option has been explored and exhausted.

Contrary to popular belief declaring bankruptcy doesn’t give your financial profile a guaranteed “clean slate.” Even if you could declare bankruptcy with 100% assurance that a court will award you this status (which you can’t), your bankruptcy will haunt you as a big, negative mark on your credit history for many years. If you think you can declare bankruptcy and then just go out and get the funding for a new business right away, think again. Having a bankruptcy on your record dramatically reduces your chances of receiving funding, and any funding you can acquire will operate under terms so unfavorable you will need to seriously question whether the loan’s necessity.

If you have a significant amount of corporate debt then the first step towards creating a truly healthy financial snapshot is contacting a professional financial organization that can help you find the best solution to meet your needs.

Why You Can’t Restructure Your Debt on Your Own



Image via mnm.com

If your organization suffers under a heavy debt load, then you’ve probably thought about taking matters into your own hands by attempting restructuring on your own. While it’s technically possible to enter into negotiations with your lenders on your own, achieving a favorable result through self-representation is all but impossible.

This statement has nothing to do with how smart you are, how effective you are at negotiation, or how much time you can devote to working with your lender. Instead, it has everything to do with the fact corporate debt restructuring is a highly specializedfield composed of a variety of factors that are best embodied by professional turnaround companies.

For example, debt restructuring is a complicated process filled with many technical and legal factors that need to be taken into serious consideration. The exhaustive knowledge and professional sensitivity required to navigate this potential mine-field can only be developed by working in the field, day in and day out, for many years.

Debt restructuring can also be a very emotional process. Business owners are always too close to the proceedings to pursue them with the cool head and sense of objectivity necessary to acquire the results they desire. This emotional closeness can cause a business owner to feel paralyzed at the prospect of negotiating with their lender and to accept a less-than-ideal resolution simply to release the tension inherent in debating with their lenders.

At its heart, like all businesses, debt restructuring occurs on the person-to-person level. Success in negotiating a favorable restructuring plan often has as much to do with the relationship between the individual on each side of the table. If you’ve had a difficult time paying back your debtor, then there’s a good chance your relationship will already be strained. When you work with an experienced turnaround company, you benefit from the positive relationship that company has likely already developed with your lender through past cases working together.

Why Can't I Just Restructure My Debt on My Own?

Your Corporate Debt Wastes More than Your Money

People tend to talk about debt like it is primarily, if not entirely, a monetary problem. They fixate on the amount of money they owe, how much they need to spend every month to make their minimum payments, how long it will take them to eliminate their debt when they contribute X, Y or Z dollars a month, and how quickly their debt’s interest rate bleeds their bank accounts dry. There’s no doubt about it, the problem of debt can be easily understood as a problem of money but debt wastes a whole lot more than corporate funds.

There’s one resource debt wastes that’s even more precious than the money your organization could spend elsewhere, and that’s your organization’s time. A large, poorly managed debt load will devour your organization’s time in a few insidious ways.

1.       Your organization and its employees will spend a significant amount of their own time trying to figure out the best way to handle its debt load.

2.       The more money your organization owes, the more of its productive hours effectively belong to its lenders. Whenever your employees are working to pay off your organization’s debt, those employees aren’t working to provide for the growth and profitability of your organization.

3.       The money your organization spends paying off debt could be put to better use investing in the infrastructure and capacity building actions your organization needs to take to reach the next level of success.

This last point is most important, and deserves further explanation.

Think about it this way. Your organization earns $500 a month in profits. In order to reach its next stage of growth, it needs to buy a $1,000 capacity-expanding widget. If your debt load eats up $400 a month of your profits, then you won’t be able to buy that capacity-expanding widget for 10 months. However, if you restructure your debt so you only need to pay $250 a month in debt, then you can have that widget and grow your organization to the next level in just 4 months, accelerating your organization’s growth by 6 months.

Debt may fundamentally be a monetary problem, but it really kills your organization by consuming an even more precious resource- its time.

Is Declaring Bankruptcy an Acceptable Solution for My Debt Problem?

Where are You Investing Your Corporate Funds?

Image via xconomy.com

Debt poses a wide variety of problems for those organizations who suffer under a heavy burden of loans. The emotional aspects of debt ownership can’t be overlooked, but ultimately the biggest problem caused by a large debt load is the negative strain it places on your cash flow. The bigger your debt, the more you need to pay your lenders every month to simply tread water. And the more money you send your lenders every month, the less money you have to invest in the development and growth of your own organization.

Every dollar your organization spends is an investment. When you purchase new, top-of-the-line equipment you invest your money in the increased efficiency and effectiveness that equipment provides. When you hire new employees, you invest in the added capacity they provide your organization. Even when you simply place your profits in the bank, you invest in an added sense of security and your organization’s ability to take advantage of future opportunities.

If every cent your organization spends is an investment, than what is your organization investing in when you send your money out to a lender every single month? Well, when most of your funds are tied up in debt repayment, most of your funds go towards investing in the prosperity of your lenders. When you have a large amount of debt you won’t be able to facilitate the growth of your own organization, but you will play a crucial role in facilitating the growth of the organization that provided you with your debt.

How does that sound to you? Would you rather work hard to improve the future of your organization, or the future of your lender? Where are you currently investing most of your corporate funds? Can you think of a better use for those monies tied up in fending off large monthly payments?