Debt can be an overwhelming force for businesses to contend with.It is paid on a regular basis and is not calibrated based on the business environment. No matter what, creditors expect to be paid in full and on time. They are legally entitled to these payments. If they don’t receive them, a bankruptcy could resulting in creditors will repossessing the assets of the firm, the real estate or the equity in the underlying company. These results are very bad for the management team and could result in losing their jobs. Their are several key benefits to restructuring debt.
Staying in Business Long Enough to Reach Hyper Growth in the Future
Even companies that have a bright future still need to pay those quarterly or yearly debt payments. If they can’t make ends meet to make those payments before major growth sets in, they may never have the opportunity to reach the pot of gold at the end of the rainbow.
For example, a company may be developing a killer new software product. The research and development costs may be $15 million this year with net income $20 million and debt payments of $12 million. They expect the new software will produce an additional profit $15 million per year for the next 5 years. If the company has low cash savings, they may choose to restructure the debt rather than pay it all on time. Ideally they could pay a lower interest rate now and a higher rate later. However, they may also give up some equity in the transaction.
Debt Payments Lowered
One way of restructuring debt allows for lower interest payments. These regular payments are costly to the firm and do not have any benefit to the core operations of the firm. In fact, this is usually the number one point of negotiation when companies take on debt in the beginning. They are taking on the lowest interest rate possible for the cash that they receive.
Creditors that want to avoid bankruptcy are often willing to lower the debt payment. This negotiation can be tense because a bankruptcy is on the table for the company, which makes the repossession process a long, drawn out legal battle that may or may not get back all the money lent. On the other hand, creditors can threaten to take over the company through their own declaration of bankruptcy and take control of the bank accounts to get their cash. Nobody wants this result so payments are usually worked out to a lower rate.
Debt Repayment Schedule Increased
When companies are facing bankruptcy, creditors are sometimes willing to negotiate a restructuring rather than going through the pain of trying to repossess everything and sell it. That may actually result in less value the creditors over time.
Instead, lenders are sometimes willing to lower interest rate payments in exchange for increasing the length of time that payments must be made. The result is more interest paid to the creditors over time. However, the firm remains viable and paying its regular payments.
Management Keeps Their Tenure
Lastly, restructuring allows management to stay in place to see through the changes negotiated with the lenders. They understand the vision for the firm and the ways they expect to maximize the business in order to generate the cash to pay back the loan. If new management were brought in, they may not understand quite how to use every lever in the business to achieve profitability. For that reason, restructuring usually allows the existing management to stay in leadership for a longer period of time.
Apollo Business Advisors is a leading business and investment consulting firm. The team has years of experience helping large companies with their restructuring needs. For more information, please contact us.
As a corporation suffering from uncontrollable debt, you’re likely at the point where you’re weighing the options on filing for bankruptcy. While it’s maybe the best option for you, don’t think it’s the only logical choice. A debt workout or settlement can potentially become better because you’re eliminating the complexities you’d face going through court.
Even if you have a bankruptcy attorney on standby who assures the procedure can easily work in your favor, don’t think you still won’t run into difficulty. Sometimes time is of the essence, including needing more negotiable terms on your debt while in the middle of a merge or acquisition.
Also, consider what bankruptcy would do with your reputation, including regulatory consequences. Even cost is a major factor.
Here’s why a debt workout is perhaps better for your corporation’s situation.
More Room for Negotiations
If your corporation has ever gone through bankruptcy in the past, you know negotiations with creditors is often difficult. Of course, the price you pay to a bankruptcy attorney pays for ridding yourself of all debt quickly.
The problem is that bankruptcy isn’t fast, including with companies like yours. A financial consultancy team can do a debt workout for you to allow more open negotiations with those you owe money to.
Since your situation is perhaps unique, the freedom to negotiate allows customized provisions best fitting each side’s needs. Terms and agreements can become stretched out to make them more manageable. An informal negotiation meeting is also less intimidating as it usually is through bankruptcy court.
Working Out Your Debt Negotiations Faster
It could take months or maybe more to complete a corporate bankruptcy. Time is perhaps a major factor if you worry specifically about your company’s value during a bankruptcy proceeding. Such a scenario could go on too long and end up leading to liquidation of your assets before bankruptcy completion.
Negotiations for a debt workout always go faster since you don’t have to follow legal timetables. With an effective debt settlement team working by your side, they can mediate on your behalf to speed things up further.
Now you won’t have to feel like you’re battling an hourglass to keep your company alive.
Giving You Confidentiality
When you file for bankruptcy, it’s going to become public, sometimes in embarrassing ways. Your corporation is maybe well-known locally, nationwide, or even internationally. Despite corporate bankruptcies being overly common, it may start a chain reaction of speculation that could create problems in hiring new employees to turn yourself around.
Through financial consultants, you can do a more private debt workout to avoid headlines in all the newspapers. Most of all, you remove all bankruptcy stigma so easily spread, regardless of press coverage.
Investors in your company also won’t panic as much since doing debt negotiations gives a stronger peace of mind you’ll solve your financial problems. Considering bankruptcies stay on record for years, you won’t have a sword over your corporation’s head.
Keep in mind not filing for bankruptcy now allows you to do a bankruptcy later if you absolutely have to.
Not Having to Spend Extra Money
Recent statistics show the average cost to complete a corporate Chapter 11 bankruptcy is often $50,000 or much more. This doesn’t reflect what kind of debts you might have, which could increase legal costs further.
It’s all the more reason to consider a debt workout since it won’t cost a fortune. Paying for a consultancy team to help you through the negotiations won’t cost nearly as much as filing for bankruptcy, saving you further financial problems ahead.
The state of your business may not be where you want it to be. Debt is suffocating – and will affect the various business decisions that you make. When you are striving for growth, debt needs to be controlled and reduced. Understanding various statistics for debt reductions will help you to move forward with your business.
Individuals and businesses alike are in debt. Across the United States, there are 1.3 billion cards in circulation. This includes credit cards, debit cards, as well as individual store cards. It has been estimated that the average American consumer has 13 payment cards in their name.
Additionally, approximately 40% of US families and more per year than they actually earn based on statistics from Debt.org.
These are alarming statistics when you take the time to consider it all. People are spending more than what they are bringing in as a way of life.
Within your business, you might be doing the same in the hope of experiencing a big break soon. However, if the debt is becoming overwhelming, you need to take a step back and understand how to reduce the debt.
Now that you understand consumer debt, you need to look at some of the business debt statistics. According to the small business administration, only half of all businesses will survive more than five years. Only one-third will survive 10 years. One of the biggest reasons for businesses going out of business is because of financial problems.
In fact, according to a US Bank study, approximately 82% of businesses fail as a result of cash flow problems. Often, businesses take on more debt than they can afford.
There are some problems that lead to debt:
- Poor cash flow
- High inventory
- Low working capital
Understanding the top reasons that lead a company to debt settlement will make it easier for you to avoid such situations on your own. You don’t want to have your debt settled because you don’t want to be in debt, to begin with.
One of the best ways to avoid debt is to start with a higher capital. The moment you going business, you should have a large capital. This can be obtained through saving, angel investors, grants, and much more. Avoid loans until the last moment possible.
What You Need to Know About Debt Reduction
Debt doesn’t go away unless you either pay it off or you negotiate with the creditor. This means you have to look at the balance as well as the interest rate. If you want to reduce your debt and do so quickly, you will either need to pay more than the minimum balance or adjust the total amount you owe or the interest rate.
Most of the time, interest rates are locked in by the banks. Unless the economy has a major shift, the interest rate is non-negotiable. If you are in financial distress, increasing the minimum balance is not likely to be an option. At this point, you need to lower the balance.
Many creditors will not lower the balance until you have shown that you are in financial distress. This is generally measured by the number of late payments for non-payment that you have made. Many collection agencies will tell you that you need to skip between three and six payments before a creditor will work with you. This is not always true, however. You can actually damage your credit score for your business dramatically by skipping payments.
Debt reduction is available, so it’s not always easy to do on your own. Why you need to work with an investment firm who understands the statistics on business debt.
Discover more about debt reductions and how they can help you by contacting Apollo Consulting to schedule a consultation.
As a once thriving business, perhaps you’re finding your finances in the red lately after various circumstances beyond your control. Whether it’s overspending on your assets, or not being able to overcome a disaster, debt can end a business you hoped to keep thriving for years.
You won’t have to close your doors with a debt restructuring strategy. You’ll need a professional financial team to make this happen, though restructuring benefits are immense.
Foremost, relieving debt from your business frees you up to focus on more important things to grow. Debt is one of the most stifling things that waste time negotiating with suppliers and credit companies.
Here are some of the biggest benefits of debt restructuring, some of which involves clever accounting.
Consolidating Debts Into One Payment
One of the most common debt restructuring plans is taking all your separate debts and consolidating them into one lump sum. This can help you get a better handle on everything rather than having to deal with each debt separately.
This might involve negotiations with a supplier or other company you owe money to. Consolidating into one monthly payment could help you pay the debt easier. Yet, the time you save not having to make phone calls to each company leaves room to help your business stay profitable.
Reducing Interest Rates
Another advantage to consolidating your debts is being able to take away growing interest rates on individual debts. Putting all your loan debt into one lump sum can reduce the interest rate charges that only drag your business further into the red.
With a financial management team, they’ll work with your banks to help make this debt consolidation happen.
Bringing in More Cash Flow
Keep in mind when you consolidate and restructure your debts, you’re lowering your repayments per month to free up available cash in your business. One of the biggest challenges you’re probably facing is trying to keep enough cash flow going after paying each debt separately.
Not maintaining cash flow could place you in danger if you suddenly need cash for an asset investment, or to cover another expense. During a disaster, you’ll also need emergency cash to keep basic operations going.
Debt restructuring frees up more capital to finally grow your business to the level you want.
Eliminating Legal Fees
Don’t forget about the legal fees you can eliminate when you restructure your debt. With help from financial experts, you’ll be able to settle many debts without having to deal with litigation yourself.
Considering legal fees are extremely expensive, you’d place yourself in even more financial jeopardy trying to settle by yourself. You’ll be able to save up more money again to create positive cash flow.
Rebuilding Your Credit
With all your debts, you’ve likely lowered your credit score. If you depend on credit to acquire new assets, you may have trouble getting a new credit line.
Negotiating and restructuring all debts helps your credit score improve. As long as you make payments you can realistically afford, you’ll be able to raise your credit score eventually.
Remember, it takes time to restore this. ABC News shows it takes nine months to raise a 680 score after a 30-day late payment occurs.
Restoring Your Reputation
Massive debts could force you into bankruptcy, which may affect your company’s reputation. Even if you survive a bankruptcy, it doesn’t always look good through the public’s perception.
Once you restructure all business debts, you’ll be able to avoid bankruptcy, which otherwise haunts you later in obtaining new credit.
Contact us at Apollo Consulting so we can help you with all financial challenges to assure a healthy business model.
Identify All Debt
Take the time to identify all of your debt. This includes looking at equipment leases, business credit card debt, mortgages, and anything else that you pay on a monthly basis. You should create a spreadsheet that identifies the balance as well as what your monthly payment is.
The benefit to doing this is that it will allow you to see just how much debt you have incurred and what you can afford. It will make it easier as you start work on a debt workout plan and make settlements.
Know What You Can Afford
Determine what you can actually afford. It is a good idea to work with an accountant so that you know what your money is coming in and what you can afford to pay out. Particularly when you have had investments go south, you might have less money than what you initially thought. Additionally, you might have some money that will allow you to settle some older debt.
By knowing what you can afford on a monthly basis, it will allow you to settle certain debts faster. It will also allow you to contact creditors in order to work out various payment plans and settlements that work more effectively within your budget.
Deal with the Creditors Directly
It’s important for you to deal with creditors directly. If you work with collection agencies, they may not be able to provide you with the best financial opportunities for your business. The collection agencies are generally working under the direction of the creditors.
Additionally, you want to make sure that you are dealing with creditors as opposed to companies that will help you to navigate collections. The reason for this is because they will often drive down your business credit score, which can be detrimental to your business moving forward.
Get All Settlements in Writing
Any debt settlement that you get should be in writing. If you negotiate with a creditor that will lower your debt to a certain amount, be sure to ask for it in physical form. Whether they are lowering your debt or reducing your payments, you need to have it in writing so that there are no questions about it down the road.
Even though you might talk to someone on the phone who is telling you that they will settle a debt or lower the debt amount, you cannot be sure that the company as a whole has chosen to accept the settlement until you see it on paper. Many companies will send the documentation via email or send it in the mail.
Work with a Knowledgeable Consultant
Debt workout plans and settlement deals can help to save your business. It will allow you to get back on track financially and overcome various obstacles. You do not need to try and do everything on your own. One of the best tips is to work with a company that can help you understand the financial state of your business and what workouts can be done based on the level of debt that you are currently in.
Additionally, a consultant can help you with investments and financial updates that will prevent you from experiencing financial turmoil in the future.
Contact Apollo Consulting today to learn more about how to deal with debt settlement and workout plans.