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How to Negotiate Business Debt

Debt accrual is not uncommon in business. When owners cannot keep up with their debt payments, more debt accumulates to the point where businesses are unable to get ahead. Often, this means the business has no other option but to close. Even after closure, the business will still have a pile of debt. Business debt negotiation is important for owners to understand after closure.

Debt can be owed to many different companies. It can come from utilities, service providers, landlords, suppliers, and banks or private lenders. First, it is important that business owners alert the creditors that the business is being closed. This could reduce the amount of liability owners carry.

After notifying creditors, owners should make plans to get rid of these debts. Options include paying the bills in full, settle the bills for less than the full payment, or file for bankruptcy. No matter what, owners should not ignore their debt and hope that creditors will ignore it as well. Collection agencies, repo men, lawyers, and lawsuits will haunt owners for several years.

Most likely, business owners will not be able to choose the first option to pay all the bills in full. This means owners need to negotiate their business debt to get a settlement. This depends on the type of creditor, the legal portion of the debts, and how severe the creditor acts.

If the business is an LLC or corporation without any debts personally guaranteed, then the creditor cannot collect from the business owner personally. This means creditors will be able to accept a small portion of what the business owes as the full payment. If the business owner owes debt personally, or if a friend cosigned for it, the creditors have more leverage.

When business owners can pay 30% to 70% in cash on the barrelhead, it is worthwhile to try to settle the debt. Creditors understand that they have a hard time collecting their money once the business has been closed. Therefore, they will agree to settle debt for 50, 60, or 70 cents on the dollar. Sometimes business owners can settle for less when hiring a consultation company.

It could make very little difference if business owners settle a couple of small debts while leaving the larger ones unsettled. Owners should make sure to tell all the creditors that the offers are contingent upon all creditors agreeing to settle debts.

Business owners need to prioritize their debts. If there are any loans that were personally guaranteed, these should be settled first. After paying loans that owners are personally liable for, any wages and benefits owed to employees should be paid. Any money left over should be paid to suppliers, credit companies, lease deficiencies, and bills from random expenses.

There are a few steps to take when settling debt. Owners should explain the business cannot pay the debts and they can offer partial payments. If creditors agree, then owners should get them to sign a release for the entire amount in exchange for the partial payment. Without a release, there is no proof that the debt has been settled. Creditors could sue for the remainder of the debt.

The last option for debt negotiation is filing for bankruptcy. This allows owners to wipe out debts there is no hope in paying. If a business owes a lot of debt that is unable to paid, bankruptcy is a fresh start. When owners feel like this is their only option, he or she should debate if bankruptcy or liquidating the business assets is a better decision.

Business debt can ruin an owner’s finances very easily. Understanding the ways to negotiate and resolve the debt will help owners save themselves from ruin. If debt is settled generously, business owners can actually have a second chance at success with a future business.

Selling a Business Through the Buyers’ Eyes

Take off your shoes. Go on! It’s time to step into someone else’s.

The buyer. Ruthless, clever, efficient, and thorough. At least, that’s how they may seem like when you first meet them. Let’s shatter that barrier of the unknown, and understand what areas you need to cover in order to put your business out to tender – it’s time to examine the behaviours and processes of ‘the buyer’.

1. Motivation

Picture this, Mr or Mrs Buyer: you’ve found yourself in a position where you have a good amount of capital behind you, and you want to start running your own business.

You have two options.

The first is to start your own business from scratch – a cheaper, but slower and much riskier endeavour.

The second is to purchase an existing business and capitalise on its already established profitability and structure.

You opt for the one that is more likely to bring you a quick, consistent income. You opt to buy-in.

2. Who are you?

And so, Mr or Mrs Buyer, what are you looking for? Chances are, you’re after a business that:

  • Is in an industry you’re very experienced with
  • Is in a situation/environment that you find quite favourable economically
  • Is the best performer around (i.e. the best deal you can find)

If you’re really clever, you will have also engaged an experienced broker to aid in the purchase of your business, because you know their commission will be well-offset by the difference in result.

3. Business, Business, Business

You’ve found a few businesses matching your very strict criteria. Now it’s time to get your hands dirty. You start looking into the financials, talking to the staff, talking to the seller and talking to the people outside of the business.

You have five simple questions that will make or break this business in your eyes:

  1. Are the reasons for selling favourable? You don’t want to buy a business that the seller is leaving because they’ve run it into the ground. If they’re selling because they’ve ‘made it’ on the other hand, you’ll consider buying it at whatever price they ask.
  2. Does the business have a good general presence? Annoyed suppliers, unmotivated staff, unhappy customer base – any of these things could break the business, or be enormous issues that you will have to fix when you take over.
  3. Does the business have control over their market position? If the business is a big player in the market space, you will have a terrific opportunity to adapt and grow the business. The alternative is to live in fear.
  4. Do the numbers balance? If the cost of labour and materials are preventing the business from running at a good margin of profit, you may want to look elsewhere. Sometimes, smart cost cutting can improve the bottom line without reducing the quality of services or products, but if the numbers don’t work, the business won’t either.
  5. Is the business well respected? A reputation is not something we can easily put a dollar value to, but buying into a business with a solid reputation with customers and suppliers sets you up with a great chance of success.

4. The Finishing Line

The business you’ve got your eye on has passed all of your tests with flying colours, but it’s not out of the woods yet. It’s time to dive deep into the business.

Here’s your last piece of homework:

  1. Check the cash flow, profit and loss statements and balance sheets of the business for at least the past three years. If the business is financially healthy, we’ll give it a tick.
  2. Come up with ideas on how to grow the business. If you can come up with a lucrative new product or service, or if you can see a change in processes that will that will greatly improve the bottom line, the business will be worth even more to you.
  3. Evaluate the intangible assets. Does the business have Intellectual Property? Does it have any trademarks or patents? These are all things without a fixed value, but can contribute greatly to the viability of the business.

Great job! You can get out of those shoes now.

And get excited! Right now you have one thing that many sellers don’t: insight into how the buyers actually think.

So print out this page, make some scribbles, and put plans into place that will greatly improve the value of your business as seen by prospective buyers. As part of that plan, engage an experienced Business Broker to help you get the most for your business.

If you’ve employed strategies like these before, or if you’re looking to start making similar changes to your business, we’d love to hear about it!

Business Accounting Services that Can Make Your Company More Profitable

In order to manage your business profitably it is necessary to have access to the appropriate financial data, advice and services. For small business in a very competitive market you are faced with the challenge of constantly improving profitability, the need to decrease taxes, eliminate tax surprises and free up time for other competing interests. Using business accounting services will make your company more profitable by reducing staffing cost and attaining cost savings based on expert advice.

Business Accounting Defined

Business accounting is the process in a business that tracks and communicates financial information. This consists of three basic activities: identifying, recording and communicating the economic events, such as transactions and investments of a company. Bookkeeping techniques are utilized to record these economic events. A key business practice for profitable small businesses is outsourcing business accounting.

Interpreting Business Accounting Reports: Internal Users

Data collected from bookkeeping is used by accountants to generate financial statements that are then presented to the internal and external users. Accountants can also analyse and interpret these financial statements and explain the meaning of reported data. Internal users, such as marketers and supervisors, of small businesses would need the expertise of a managerial accountant to interpret these financial statements. If such staffing is not a part of your small business it is then pertinent to gain the services of business accounting professionals with the requisite qualifications and experience who will assist small businesses in understanding the economic status of their company, and, by extension, run the company profitably. Without the expertise of accounting professionals your business could run the risk of failing to meet legal and regulatory standards, this mistake could potential eat away at your profits.

Interpreting Business Accounting Reports: External Users

The external users vary. Investors who are seeking to expand his/her investment portfolio would need financial information on an organisation as well as creditors and government agencies. Government agencies typically seek out tax accountancy information of an organisation. Small business that seek profession tax accounting services ensure that they are advised on using the most tax effective strategies so that they pay the correct amount of taxes, and are compliant according to government standards. Financial accountancy services are required to manage and produce the reports needed by the various external users. Accurate data drives profitable business decisions, and that’s why small businesses must ensure their books are in the hands of experts.

Financial Reports Produced

Business accounts are usually kept in the form of financial statements that show all of the financial resources within the organisation and how these resources are being allocated. Accounting records typically filed are balance sheets that give a snapshot of a business’s financial information from the period of the snapshot through the end of a specified accounting period. Additionally, profit and loss statements, and cash flow statement are produced along with an analysis of the business’s performance by applying ratios, benchmarks in their reports so as to enable their performance to be improved.

Business accountancy should be outsourced for small businesses as there is a variety of financial expertise required for tracking and communicating analysing and reporting financial information about the business. Typical services provided are in the form of accounting, bookkeeping, taxation and business consultation. This information is generally sought out by shareholders government agencies and business managers to keep track of finances of the business. Basically, business accounting services provide an important function in empowering small businesses understand their financial reports to make decisions that positively impact the bottom line.