Corporate Debt Reduction
Corporate debt reduction is an avenue companies can utilize when faced with the problem of owing too much to creditors and various other vendors. The process of reducing the amount owed is somewhat similar to the process non-business owners experience except that the business carries on with operations as usual, and the court is minimally involved. When faced with reducing debt and the court is involved, all major business expenditures are examined by the court to ensure the company is staying in line with the reduction plan. Usually, this happens when a business files for Chapter 11. This may also be termed as a business restructuring. If Chapter 7 is filed, then the company starts the process of ending operations for good.
Entrepreneurs considering starting a new venture should be careful to create a business plan in which is set forth a financial section that explains how money will be spent. Without a business plan the owner runs the risk of improperly handling finances, unless this is an area in which there is much expertise. A plan should be in place from the very beginning on how corporate debt reduction will be handled and in what cases. As the business progresses, financial analyses should be carried out on quarterly or semi-annual financial statements to discover the health of the company. These ratios will readily show how much the company is leveraged and if there is any danger of going into the red.
If there are few assets to sell in order to bring help reduce what is owed, then perhaps agreements between the creditors and vendors can be agreed to in order to pay off what is owed gradually instead of in lump sums. A trustee is generally appointed to handle these matters. This would accomplish the goal without unnecessarily jeopardizing the future of the endeavor. Agencies are available specifically formed for the purpose of assisting owners in corporate debt reduction and can be found all over the internet as well as in phone directories. "For the wrath of God is revealed from heaven against all ungodliness and unrighteousness of men, who hold the truth in unrighteousness; because that which may be known of God is manifest in them; for God hath shewed it unto them" (Romans 1:18-19 KJV).
Certainly corporate debt reduction does not have only negative connotations. An enterprise can choose to refinance debt before it comes due in order to create smaller payments, or if the debt is impending, then stretching the payments out over a longer period of time could be a good solution. While considering financial restructuring, the astute financial corporate manager would do well to give thought to all aspects of the relationships the company has with the banks that hold the debt of the business. Does the bank truly understand the business and has the relationship been a good one? Perhaps other banks could offer better interest rates or services that could assist the company in streamlining financial processes. The financial manager could decide to buy back company bonds with earlier maturity dates for quick cash flow to enable pay back of loans that have come due. These early-date maturity bonds are sometimes referred to as commercial paper.
Corporate debt reduction could also be handled utilizing transactions in other currencies, if the end result could mean lower rates, costs and more manageable terms over the length of the loan. Some agencies may be able to negotiate payback at zero percent interest! The financial advisors will professionally assess the current financial standing of the company and all the issues impinging upon the debt in order to arrive at a kind of diagnosis of the problem. This is a holistic approach that corporate debt reduction managers should seriously consider so that nothing is overlooked. In some extenuating circumstances, the business may need to consider selling off parts of the company in what is termed as a divestiture. Actions such as this are somewhat common in an economy that has had a downturn.
Astute corporate debt reduction professionals have often been successful in reducing the monies owed by businesses as much as fifty percent of the total. These advisors will go to the creditors and negotiate down the interest on money borrowed so that payments become affordable over the long term until all is paid off. Another consideration for corporate debt reduction is seeking improvements by examining how a company produces the goods and services sold. Production has inherent within it many opportunities for waste, but also many opportunities for savings. Understanding the product and the production of it reveals areas that can be improved upon, which also means a better product, less waste, and therefore less owed over the long run.
A look should also take place at the financial solvency of the company's stakeholders, and the amount of money available to invest into the company at a crucial time. Perhaps there are alternative sources of cash infusion previously overlooked that could be implemented or new and varied types of financial planning that could eventually yield better decisions by upper management. Each and every aspect of an operation is crucial and integral with every other part in order for a company to function like a well oiled machine. Corporate reduction strategies can result in all of the above when experienced professionals are on hand to lead the way to a debt reduced or debt free future for the business.
Business Bad DebtBusiness bad debt can quickly become costly if not resolved. Outstanding finances can put a strain on owners and tighten monthly funds. Taking out additional loans to cover these expenses can be tempting but has proven to be even more costly, sometimes driving companies into a financial hole that is spiraling out of control. But not all borrowing is negative. Entrepreneurs often have to take out substantial funds to start up a new company or take a business to the next level. That doesn't necessarily mean that borrowing can be harmful. As long as the assets are generating more funds than the interest and fees incurred by the borrowed funds, outstanding funding can be considered good. But when the funds are generating little or no additional income or were used for items that weren't needed, it is considered business bad debt.
Whether good or bad, debt is a legal liability. It reduces income and equity in a company, ultimately the net worth. In the beginning, financing comes from the founders, investors, individuals, banks, and financial organizations, but ultimately to keep the enterprise running, customers must ultimately fund the company. If profit is not made, then bills cannot be paid and the company cannot continue to exist. When customers do not pay for products or services that cannot be sold, further debt occurs. Entrepreneurs can hire a debt recovery company to help collect from delinquent customers or propose legal action against the client. But many times, writing off the amount as a business bad debt that can't be recovered is simply cheaper. However, already purchased inventory that can't be sold cannot be included. These write offs can come from clients, partners who leave the business, or the sale of the property. Although some lost funds can be claimed as a tax write-off, not all situations qualify.
But tax deductions are a complicated matter. Business bad debt does not simply include a customer's refusal to pay what is due. Owners carry the burden of proof that the expense is valid and was for business use, not personal use. It is not necessary to show a court judgment, but he or she must demonstrate that appropriate steps to recover the funds were taken. Bankruptcy proceedings is proof that funds are unrecoverable. Owners can only claim the fair market value or the amount of financial loss on the product, whichever is lower. If part of the value was reclaimed, either through payment or a secured item, only the remaining amount can be deducted. Plus, the company's accounting methods will determine whether a deduction can be taken at all. If the business uses a cash method of accounting, one where income is reported when payments are received, a deduction cannot be claimed because the income was never counted to begin with. On the other hand, accrual accounting methods, where the income may have been previously counted for, may be approved to take a deduction. Business bad debt reductions must be claimed in the year they are written off company books. Otherwise, claims must be filed separately, either within seven years of the file return or two years within the time the tax was paid for full claims (within three years from the file date for partial claims).
If the financial problems do not originate with customers but within the company, other steps can be taken to recover the funds. Business owners preferably do whatever possible to avoid filing for bankruptcy. Proceedings are expensive and are very public, creating an even worse problem - a bad reputation. Entrepreneurs can negotiate with creditors to arrange more appealing repayment plans. They can also shuffle debt onto credit cards that offer lower introductory rates. But beware, once the introductory period expires, interest rates and usually quite high and can create an even greater financial hole. When this is too overwhelming, owners can choose to go with a debt consolidation company that specializes in business bad debt. Agencies can assist with the negotiation process, reduce debt owed and stretch repayment over longer terms. Going with a debt consolidation agency also help them avoid costly legal fees associated with bankruptcy, maintain relationships with creditors and keeps the business open to generate more revenue. Make sure to secure an agency with a proven track record that can demonstrate positive results.
Although funding as a whole may not be avoidable, business bad debt often can be eluded. By having clear, well-defined visions and solid financial plans, entrepreneurs can find less expensive alternatives on meeting them and taking things slowly. Don't launch too many projects at one time. Build it up slowly, sticking to the plan and adding additional areas only as finances allow. Bulk pricing can be tempting, but only purchase what is needed at the time. Buying too much at one time can be a waste, even when the sales are good. Pay bills on time and stay within a budget. This will help owners stay on good terms with creditors and give them negotiating room if they ever need it in the future. "If it be possible, as much as lieth in you, live peaceably with all men." (Romans 12:18) Keep all receipts for tax purposes and use appropriate deductions. But staying out of business bad debt requires that customers pay regularly. Companies must invoice their clients monthly and remind them of outstanding balances. There are many software programs and web applications that can assist owners with regular invoicing. Review what is coming in often and address delinquent clients before they become problems to keep business afloat.
Financial professionals agree to get out of a money hole as soon as possible and only borrow what can be paid back within a short amount of time. Some go even further to suggest paying for everything in cash whenever possible. Although this may be improbable, borrowing can be managed and even avoided. This is crucial when trying to begin a new company or keep one afloat.