Debt Management Tactics Every Business Owner Should Know

Avi Grunwald, Fair Capital LLC's CEO, knew that the debt collection segment had an unfair reputation, and many firms were not interested in hiring a collection firm. To streamline this, he adopted a strategy to hire industry professionals to effectively mediate between creditors and debtors, which resulted in a success rate of 52% higher than the industry rate.

Based on the scale of business, debt varies, and business owners need to have the key skills to manage their debts to avoid pitfalls. As business continues to emerge, the complexities of handling debts increase which can be handled seamlessly by building the necessary skills.

Prioritizing Debt Repayments

The first and foremost thing is that business owners need to have a clear understanding of how many outstanding debts exist with every minute details such as rate of interest, outstanding balances and repayment terms. The higher importance should be given to high interest debts to lower total interest cost; this approach is called Avalanche Method. It is also essential to communicate with creditors to reduce the interest rate if possible or an extended time to repay the debts. Moreover, timely payments have to be followed in case of more debts which can seamlessly performed by adopting stringent budget plan and by effective handling of cash flow.

For example, when Dell technologies became privatized in 2013, Michael Dell given more attention towards repaying the firm's debt to takes back financial flexibility, and this has incorporated making bigger lump sum payments to lower entire debt.

Clint Engler, CEO, CERAC Trader Strategies Inc says "to effectively manage business debt, prioritize high-interest payments, analyze cash flow to avoid future borrowing, and consider refinancing options"

Negotiating with Creditors

Negotiation impacts a lot in business, mainly to settle the deals under control. Business owners need to build this skill so that they can manage well with creditors. Having a high interest rate is the most unfavorable situation every business should ever face, and negotiation is one of the tactical ways to lower it which will help to the close the deal sooner than the proposed time. In certain business scenarios there can be a need to extend the repayment terms and this helps to reduce the monthly payments, streamlining cash flow activities. Moreover, business owners must have a thorough understanding of financial situation to be good negotiators and openly deal with creditors. 

When there was a financial crisis in 2008, Brian Moynihan, CEO of Bank of America, took the initiative to negotiate with regulators and creditors to handle debts. Apart from the negotiation, he restructured the debt to stable the bank's financial conditions. 

Alex Alexakis, Founder and CEO of PixelChefs says "Knowing your walk-away point is essential in any negotiation, especially when you are running a business"

Refinancing and Consolidation

Sustaining business is crucial for every business owner and they borrow huge amounts to keep the business ticking in case of any emergency situations. However, managing debts can be challenging part and needs to adopt proven steps to propel. Refinancing is one of the effective strategies which help entrepreneurs to bring all the current debts into a new one under various terms and conditions predominantly to lower the interest rate. Similarly, debt consolidation converts all entire debts into just one loan, providing with a lesser interest rate and a smooth repayment schedule. With these strategies in practice, business owners can save money in the end. Also, refinancing plays a vital role in assisting borrowers to revise the loan agreement, adjusting payments which suit their financial conditions.

Jeffrey Immelt, Former CEO of General electric implemented debt refinancing and consolidation strategies to handle firm’s huge debt portfolio. These strategies resulted in lowering the interest rates and combining several debts to make firm's financial structure less complex.

Improving Revenue Streams

Business owners can ponder various ways to improve revenue streams in a way that can be helpful to swiftly close the existing debts. They can introduce new products or services to lure more customers, and fixing a value-added pricing instead of market price will lead to higher profit so that they can utilize a major portion of the amount to clear the debts sooner. It is also important to enhance sales tactics by funding an adequate amount in the marketing activities which can help in the acquisition of customers and retaining them. Although Business can have a complex situations, business owners should find additional ways to improve revenue and bring the debts under control for a smooth flow.

To clear the debts of Microsoft, Satya Nadella adopted a strategy of transitioning of software sales to cloud services with expansion of cloud services which helped increase revenue. Consequently, this major changed helped the firm rise revenue and handle its debt. 

All in all, to successfully take the business forward, business owners have to develop debt management skills. The key is to have a comprehensive knowledge about the business along with skills will help them to manage their debts efficiently and bring it under control. Business owners can make use of negotiation to handle well with creditors, refinancing to bring all present debts into new terms and other required skills for a better financial future. Eventually, the aim is to make the business remain stable and can emerge without having any debt complication.