Prioritizing Your Small Business Debt

Posted by on August 14, 2013 in Business Financing [ 0 Comments ]

business debt managementMajor financial obstacles often threaten the vitality of small businesses. The stress and severity of your situation might lead you to consider bankruptcy as your only option. However, a strategic approach to how you pay your bills can enable your business to keep functioning even when the budget is tight. Knowing the significance of where you are putting your money and why certain costs must be addressed will keep you from slipping deeper into debt.

Related: 5 Steps to Acquire Small Business Financing

Fines and Credit Score Damage

Reviving your business requires that you prevent future debt which can accrue as a result of fines, penalties, raised interest and lowered credit scores. Put payroll and sales tax at the top of your list. It is your responsibility to make sure that money owed to the government is paid. Failing to make these payments will result in fines, making it more difficult to pay off the debts you already owe. Your business may suffer penalties like having business equipment or property seized. The Internal Revenue Service can even remove funds in your Individual Retirement Account.

Financial duress will not exempt your business from the responsibility of paying these taxes. The government retains the authority to collect back taxes even in the event that you file for bankruptcy. Aged payables, which are bills that are over due by 60 days or more, take precedence as these outstanding debts will build interest the longer you ignore them. Aged payables may be reported to business credit bureaus, and decrease your business credit score. Contact a vender to communicate the effort you are making and negotiate a new plan if your current payments are not manageable.

Related: Get help from a debt manager or qualified credit counselor.

The Cost of Conducting Business

Taking a break from production to save on operating costs is likely to damage the long-term stability of your business. Consumers may investigate your competition during this period and your profits may decline. Instead, protect your assets, including employees, property, vendors and anything vital to preserving your ability to provide products and services.

  • Keep your employees by continuing to make paychecks — delivered on time and in full — a top priority. Skipping a single pay period can put you at risk for losing talented workers who will be forced to seek other workplace opportunities.
  • Similar to employees that depend on paychecks from you, vendors and suppliers depend on you to pay them for products and services. Prioritizing this relationship will enable your business to continue to function and save you from the hassle of forging new relationships with other vendors.
  • If you don’t pay day to day expenses, you will have difficulty running your business. Electricity, rent and company phone lines are essential for transactions. Attempt to negotiate a partial payment plan, rather than waiting to see how long it takes for your services to be discontinued.
  • Make payments on loans or mortgages you have for business vehicles and equipment, known as secured debts, since defaulting on these can result in having property repossessed. Losing property you rely on will then threaten your profit-making potential.

Where You Can Save

While protecting yourself from increasing debt and stagnate profits comes with a price, there are some corners you can cut to temporarily free up your budget. Use the money that you save from reducing insurance and using your business credit card to afford priorities.

  • Downsize your insurance coverage. Don’t eliminate insurance altogether, but instead increase your deductible or temporarily cancel liability insurance to save money. Sometimes taking a risk for a short period of time is the only way to return to a place of financial security.
  • As long as you are making minimum payments, credit card payments can take a lower priority than the previously mentioned bills. Using credit can buy you time to increase your profits without demanding immediate repayment. Just be sure to not rely too heavily on credit as the interest will eventually add up.

Related: Debt vs. Equity: What Small Business Owners Need to Know

Following these guidelines will offer you a chance to get back on your feet. Remember that this process of tackling debt will require time, patience and intentional decision making. With every bill that comes in the mail, stop and consider how paying the bill will contribute to the daily business transactions that will keep you afloat.

About the Author: Alanna Ritchie is a content writer for, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.

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