Thriving in Tough Times: 5 Tips to Recession-Proof Your Business
Job losses, bankruptcy, businesses drowning in debts— whatever it is, recessions are a bummer. It causes uncertainty and financial strain to individuals and businesses alike. It sends shockwaves through the economy, leaving many feeling vulnerable and apprehensive. These are scary and challenging times, but with the right strategies in place, you can recession-proof your business and navigate the turbulent waters with confidence. So, let’s explore the five key tips that will guide you through this unsettling climate and help you emerge stronger on the other side. Keep your expenses in check. Stop spending on unnecessary things. Your business will only thrive in the long run if you maintain financial discipline. You don’t want to live in luxury now and die of hunger later. Simply put, stick to your budget. Keep a close eye on expenses to maintain profit margins and safeguard your bottom line. Take the time to review your expenditures and identify areas where you can actively reduce costs without compromising the quality of your products or services. By doing this, you can free up cash flow to reinvest in your business and weather economic downturns. Pay down your debt. One of the reasons why you might struggle during a global recession than you normally would is because you’re drowning in debt. Your business could experience reduced cash flow, increased interest rates, or worse, increased risk of bankruptcy. So, you should prioritize paying down your debt as early as now. Here are some steps you can take. Establish multiple income streams. As a business owner, it is wise to diversify your income streams to recession-proof your business. By doing so, you will help reduce the risk of losing money and have peace of mind knowing that you always have alternative options to cover expenses. You can explore various avenues to establish multiple revenue streams. One way is to consider expanding your product or service offerings within your existing business. Another is to invest in rental properties, stocks, or bonds. These investments can generate regular income without requiring active involvement, providing a reliable source of funds even if your primary business encounters challenges. Deliver value to customers. What do you think sticks to the minds of your customers the most, is it the price or the quality? Well, both price and quality play a crucial role in maintaining customer satisfaction. However, the quality of your product or service ultimately determines their long-term impression and loyalty. Quality encompasses various aspects such as functionality, reliability, durability, aesthetics, and customer support. When customers receive a product or service that exceeds their expectations, they will remember that positive experience and develop a favorable perception of your brand. As a result, you will establish enduring relationships that can withstand any great financial crisis. Capitalize on your strengths. The business industry is a competitive landscape, so you might be tempted to copy others’ successful styles and strategies to check if they will also work for you. While it seems like a shortcut or a safe bet, you risk diluting your own identity and competitive advantage. Each business has its own set of strengths, expertise, and unique value propositions. By neglecting them and blindly imitating others, you miss the opportunity to stand out and differentiate yourself in the marketplace. Worse, you might be vulnerable and susceptible to failure during a recession. In these challenging times, do you think it is wise to gamble your business fate? Start doing the work now. Don’t wait for the storm to hit before you start preparing. In other words, don’t wait to do all these tips when the recession hits. Start implementing these strategies to recession-proof your business. Contact us today at 1300 181 220 to help you manage your financial situation and be prepared for any economic downturn that may come your way. Act now and secure a stronger future.
AVA Advisory Breaking Scoop: West Australian Businesses Warned as ATO Ramps up Wind-up Notice
A 17-year security service was on the brink of liquidation after the Australian Taxation Office (ATO) cracked down on unpaid taxes In an unfortunate turn of events, Neville Mader, the driving force behind Perth Security Services (PSS), found his life’s work hanging by a thread. As if contending with the pandemic-driven downturn wasn’t enough, a snowballing legacy tax debt threatened to unravel everything he had built. The company was hit with a $400,000 tax bill after successfully contesting a superannuation claim leveled by an employee. Mader said he had no choice but to hand the reins over to administrators in May, when he was hit with a letter demanding payment within 21 days. “In the first few weeks, I didn’t really know how this was all going to play out, and it was really depressing. I’ve been in business for 17 years, and we were at risk of becoming a statistic,” he said. The administrators managed to ink an eleventh-hour deal with a Melbourne-based investor willing to purchase 80% of the company. But when presented with the deed of company arrangement, Mader said the ATO opposed it in favor of placing the company in liquidation, which would have involved selling off its assets and dissolving the business as a means of recouping the debt. Mader managed to get the deed over the line, with PSS exiting administration earlier this month. While this is a good outcome for Mader and his employees, this serves as a cautionary tale for other West Australian businesses. The ATO has instigated 47 wind-up notice in Western Australia this year, 21 of which have been successful. This is a sharp increase in the handful of wind-up proceedings that were launched in the past years. So if you’re a struggling business owner, it’s time to act quickly and seek professional advice. Contact Ava Advisory at 1300 181 220 to discuss the ATO tax payment plan and explore options to avoid liquidation. Early intervention is key, so don’t hesitate to reach out.
Why business valuations are essential for growth (not just sale)
Business valuations are typically performed by business owners looking to sell a business or by potential buyers looking to purchase a business. However, business valuations can be an extremely useful tool for business owners in a variety of situations. Most usefully, business valuations can be used to identify those areas that are detracting from the overall economic value of a business. This clarity allows business owners to address these issues and subsequently increase the overall value. Unfortunately, business valuations are under-rated and many business owners are failing to utilise this tool in business operations outside purchase and sale. There are several different methods of valuation which can be categorised under three main approaches; the income approach; the asset approach; and the market approach. Income approaches focus on ratio analysis and generally measure the discounted cash-flow or net benefit stream of the business. Asset approaches simply calculate the net asset value of a business (sum the parts of the business). Market approaches focus on the economic and industry information and are typically comparison based, measuring the valued business against other businesses that share specific demographic and criterion-related commonalities. Each category covers quite a number of valuation methods, and each method has particular benefits and drawbacks. However, although a plethora of options exist, there is much grey area in terms of which technique is right for an individual business. To decide on how best to value your business, you must first consider the reasons behind performing one. Be it purchase or sale, partner acquisition, or perhaps simply to analyse the internal workings of your business for areas that need improvement, first one must consider the premise of value. It is then highly recommended to spend time researching the appropriate choices. Finally, consult a completely independent third party, preferably a broker or better yet, a business valuer. In this way you will provide the clarity you need to make the right decision.
Why business restructuring is the best debt solution you’ve probably never heard of…
Business restructuring is a specialty of ours, so it’s no surprise that it’s one of the most common subjects we’re faced with when people are looking for help with their business. The issue is that business restructuring can be handled by a number of different people in an unlimited number of ways. Speaking to an accountant about a restructure will be like speaking a different language to a business consultant, even though they’re both talking through the same options. So if you’re confused, you’re in the right place. Here are the most common methods of restructuring a business and the terms that go with them. What is a business restructure? Basically, a business restructure or informal restructure is an internally managed process of changing how the business works. This is very often done by successful companies to adapt to changing market conditions, but can also be done by failing or struggling businesses to get back on track. We’ve written before about the pros, cons and key principles of business restructuring before. In this article, I will cover some of the more technical terms and methods of handling it. Operational restructuring This is one of the most commonly utilised methods of restructuring a business and what one usually thinks of when the term ‘restructure’ comes to mind. This is a process of identifying underperforming aspects of business operation and then systematically improving those aspects. However, operational restructuring should only be used to refer to those changes made to the profitability of a business, not those changes made to the capital structure. For example: Streamlining facilities and processes to improve systematic efficiency Elimination of non-core business Improving market-product alignment Financial restructuring This is a term that is often incorrectly used to refer to any restructure process. The error occurs because all aspects of a business eventually have some relationship to financial outcomes. Financial restructuring should be used to refer to any process changes that specifically address issues that are due to the capital structure of the business. For example inefficiencies: Involved in selling parts of the business In the conversion of preference shares to ordinary shares In the transfer of debts to different creditors Related to debt subordination or compromise Turnaround management This is a process of managing areas of financial distress in a failing or struggling company in order to return to a healthy financial state. If a company is in distress, is facing or currently insolvent or merely underperforming, then turnaround management is the kind of restructure that is implemented. There are many sub-domains of turnaround management that can be pursued, for example: Business stabilisation. This is a process that is utilised to manage short-term causes of financial distress, especially when unexpected. For example, if a business has incurred a major fine or lost a major contract. Business stabilisation refers to a number of short-term options that will improve cash-flow in the short term to facilitate long-term planning. The workout. A workout is a method of dealing with creditors by restructuring your business. It is commonly used in very dire situations as an alternative to administration or liquidation. It’s so under-used and so useful, we’ve dedicated an article to it here. Debt refinancing. This is a process of identifying more expedient methods of addressing the companies debt finance. For example, seeking a more appropriate type of finance or rescheduling the terms of a finance plan. In all of these cases, restructure is an invaluable tool for the business owner in managing their affairs.
Why a ‘Wind-up Application’ Doesn’t Mean You Need to Wind Things Up
A wind-up notice is a formal, written document informing a business that it’s required to meet with its creditors in court. This is done to identify if the business can repay its debts. If the business cannot repay its debts, it is deemed insolvent and the debt will be collected some other way, often through a process of administration or liquidation. This can be a pretty scary situation to be in, but it doesn’t have to be. Directors are protected under several different legislative acts, and have plenty of room to move if served with one of these. What Is a Wind up Notice? A wind-up notice is a type of statutory demand. While we have written about statutory demands in general before, wind-up notices are their own special animal. All creditors (including the Australian Tax Office) can serve them, which means that there may be many ways to oppose it. Should the wind-up notice be successfully opposed, then the business won’t need to wind-up the business. What Is a Notice of Application for Winding up Order? A winding up application notice order is a legal document that is filed with the court by a creditor of a company. The notice informs the court that the creditor intends to apply for a winding up order against the company. A creditor can obtain wind up application order if the company owes them at least $2,000 and the company has failed to pay the debt within 21 days of being served with a statutory demand. How to Oppose a Wind up Notice The key to opposing a wind-up notice is to pay attention to what it is. A wind-up notice doesn’t mean you need to wind-up your business. Technically, it just requires you to meet your creditors in court to discuss how re-payment will work. As such, you can oppose the notice if: You can pay the debt. If you have the funds to pay the debt, now is the time to do so. This is the quickest and easiest method of sorting this situation out. If you can’t pay it in full, you might be able to implement a repayment plan with the creditors, which would again circumvent this whole scenario. You can prove solvency. The number one opposition to a wind-up notice is to prove that the creditor’s application is erroneous. A wind-up notice is usually served after an initial statutory demand has elapsed. If this is the case, both court and creditors can presume insolvency. If you can demonstrate otherwise, you may give yourself some breathing room. However, this can be tricky and isn’t always successful. If you are solvent and facing a wind-up notice, you’ll want to involve an expert to show you the path. You are considering voluntary liquidation. A court will generally view a voluntary liquidation and a court-mandated winding up of a business as equivalent. If you can demonstrate that the liquidation is already in progress, then during the hearing you’re less likely to be required to wind-up the business. You can provide a clear alternative to repayment. If you can demonstrate to the creditors that you have a better method of paying them off while continuing to trade, then the opposition to the court-mandated winding up may be successful. You can get your other creditors involved. Not all creditors want to wind-up a debtor, especially unsecured lenders, who are generally promised very little in any administrative proceeding. Courts are required to consider the situation of other lenders when hearing a wind-up application and if enough other creditors are opposed, then you might be successful and continue to trade. All of these options have a number of legal bumps to navigate and each needs to be considered in terms of your personal situation. Moreover, approached incorrectly, you could be breaking the law, so ensure you seek professional advice before deciding on a course of action. You will need to act quickly, however, as generally speaking you will only have 21-28 days before the hearing date. If you act now, you’ll have plenty of time to get your business finances in line and stand a better chance of avoiding having to wind up your business.
What’s your business worth? – It depends on how you slice it
Considering what your business is worth is essential for any business owner in making decisions. But it’s not just good for identifying the purchase price in the event of a sale or acquisition; it can also be used to establish partnership agreements or dissolution, resolve disputes relating to estate and gift taxation or even assist in something as left-field as divorce settlements and proceedings. Most usefully though, as I have talked about before, you can use a business valuation to grow your business. In this post I discuss how your business might be worth different amounts depending on how you look at it. Why does the value of a business change? As business valuation is an extremely versatile tool, there are many ways in which a business valuation can be performed. Depending on the way the valuation is conducted, the outcome may change. How do you decide which kind of valuation is right? To decide what method of valuation is right, you need identify the main reasons a valuation is being performed. This idea is known as the ‘premise of value‘. This is basically the assumptions one has made about where in the business the most value lies and will determine the method of valuation. Assumption one: the value of the business You can make one of two assumptions about the business itself which will determine the focus of the valuation. Is the business worth more in its ‘liquidation’ (termination, breakdown and sale)? If this were the case, one would choose a valuation method that would focus on the asset value of the business and discount the ability of those assets to generate wealth in the future. Is the business worth more as a ‘going concern’. This refers to the assumption that the main value of the business is in its ongoing operation. In this case, one might choose a valuation method that focuses on the return of investment over time. Assumption two: fair value for more than one party If the valuation is being used to determine value for more than one party (for example in a purchase situation, or when a partnership is involved), you need to make an assumption about in relation to the ‘fair value calculation’. Basically, what is going to result in the fairest valuation for all parties. Again, you can make one of two assumptions about this: The business’ value is ‘in exchange‘, meaning that the business is most valuable to all parties when considered alone because the individual assets of each party do not confer inequality in the value of the business. The business’ value is ‘in use‘, which refers to the assumption that the business is most valuable when considered in combination with other related assets, for instance specific competitive advantages one party may have over others. A more simple way of valuing your business For those business owners who are simply interested in gaining insight on the ‘problem areas’ within the business, the valuation method is less important than the ratio analysis. A ratio analysis is a key part of any valuation process, and one that should be done regardless of any other considerations. Essentially this process is where you would look at the books to see what the cash-flow, turnover and profit-margins are. The ratio analysis alongside the assumptions about the premise of value provide deep insight into the inner workings of the business and clarity as to what areas need improvement to increase the outcome value of the valuation.
Served With a Statutory Demand? Here Are Your Options.
Have you been served a with a statutory demand? Or maybe you’re being proactive? Either way, I am glad you’re here. Statutory demands require speed and precision in order to ensure the best possible outcome for you and your business. What Is a Statutory Demand? If you haven’t paid a creditor on time, one way they can try to recover their debt is to serve you with a statutory demand. It’s a written request for their debt to be paid that’s structured in accordance with Section 459E of The Corporations Act 2001 (Corporations Act). Not all written demands are statutory requests, but if so you need to move quickly. How to Identify a Statutory Demand Rather than consulting the Corporations Act, you can quickly identify a statutory demand by the following characteristics: Is it on the correct statutory demand form? Form 509H is the only approved document on which a statutory demand can be served. Does it meet the minimum debt amount? The minimum is over $2,000 AUD, although this can include the interest owing at the date served. Does it indicate the type of debt? It cannot be for a debt due later than the date of the demand and must not include prospective liabilities or unliquidated damages. Was it served in the correct manner? Statutory demands don’t get filed with the court, but they must be served in the correct manner. It must be posted to or otherwise delivered to the company’s registered address in accordance with the ASIC database. It can also be delivered personally to a director of the company. If any of these criteria appear unmet, you might have some room to move. However, it’s always best to seek legal advice before acting. If it looks as though you’ve been served with a statutory demand, you will need to act fast so having an expert identify these criteria quickly is key. How Long Does a Statutory Demand Last? A statutory demand is valid for 21 days from the date of service. During this time, the company that receives the demand must either comply with the demand by paying the specified debt or enter into an arrangement with the creditor, or to apply to set aside the demand. Can a Statutory Demand Be Served by Email? Yes, this was confirmed by the Federal Court in the case of Bioaction Pty Ltd v Ogborne [2022] FCA 436, which overturned the previous understanding that statutory demands could only be served in person or by post. To serve a statutory demand by email, the creditor must send the demand to the debtor’s nominated email address. If the debtor does not have a nominated email address, the creditor can send the demand to the debtor’s last known email address. The email must contain the following information: A statement that the demand is a statutory demand under section 459G of the Corporations Act 2001 (Cth) The amount of the debt A demand that the debtor pay the debt within 21 days of receiving the demand A statement that if the debtor does not pay the debt within 21 days, the creditor may commence bankruptcy proceedings against the debtor If the debtor does not pay the debt within 21 days of receiving the statutory demand, the creditor can commence bankruptcy proceedings against the debtor. Looks Legitimate? Here Are Your Options Of course, if your legal counsel determines that the request is invalid you may respond as though this was a non-binding request for payment. If it is a valid statutory demand, you have essentially four options, with four possible outcomes: Ignore the demand. This is not recommended. Your company will be presumed insolvent if the demand is ignored for 21 days. In this case, the creditor can apply to wind up your company, regardless of your actual financial situation. Pay the demand. If you have the ability, this is the quickest method of resolving the matter. Set aside the demand (via the court). This can be done: If the demand is defective in some way, although the court will consider this only if the defect will cause you substantial injustice. iIf there is a genuine dispute about some aspect of the debt. If your dispute is deemed valid by the court, the demand will be set aside and the creditor may be required to pay a costs order. If you have an offsetting claim against the creditor that could offset the debt in part or in whole. Other reasons under Section 459J(1)(b) of the Statutory Demand Corporations Act. This tends to be a scenario in which the creditor is trying to abuse the statutory demand process, but there are other genuine reasons for a demand to be set aside. Negotiate the demand. If the creditor is amenable, you may be able to negotiate a compromise that allows you to pay the debt under more suitable conditions. This is an especially ideal solution if fulfilling the demand will cause problems for your cashflow or your business operations more broadly. Can’t Pay the Debt? Here’s the Upshot As you can see, there are a number of options open to you if paying the debt outlined in the demand will be problematic. However, the key to securing your best interest is moving as quickly as possible. You only have 21 days to organize your affairs before the creditor can apply to wind up your business.
Productivity Hacks: Making Business Work
We’re in a world of too much distraction, too much noise and far too much work. So we’ve got all the tips looking into ways to be more productive – and make business work. In a utopian world, all the cogs in the factory of life turn nicely together where we’re working Monday to Friday, 9am-5pm – or maybe to 12noon on Fridays if we’re lucky. The reality is everyone is busy. We’re working longer hours where we’re plugged in from the moment we wake up until the screen falls on our face when we fall asleep. These hacks will get us productive in no time. Healthy Mind… Being productive isn’t about suddenly being disciplined or organised and perfect. It’s about working smarter – not harder. And this all starts with our health. To push our body through the stresses of the day, we need to look after ourselves first and so build our energy for our mental and physical wellbeing. Focus on our health first and we can take care of business. We’re not a robot (unfortunately). We’re human bodies with complex minds that require purpose and enjoy achieving. Eat breakfast every day – even if only smoothies Take it outside: walk barefoot in mud, frolic in the sunshine, skip in the rain Perform one random act of kindness per day – no matter how insignificant. Ditch the guilt: know when to say no. It’s ok to not say yes all the time. Remove the boundaries around time: the less pressure we put on ourselves, the better Ditch your notifications. Unsubscribe. Unfollow. Celebrate the milestones: we work too hard not to appreciate our achievements and the moments that matter It’s All About Attitude Productivity isn’t about suddenly being disciplined, organised or perfect. Productivity is about working more efficiently. In 1896, Vilfredo Pareto devised the 80/20 Pareto’s Principle as “the law of the vital few and the trivial of many”. He developed the theory in the context of economics but found it extended naturally to other areas of life. This means: 20% of our activities account for 80% of our results 20% of our products and services account for 80% of our profit 20% of our customers account for 80% of our sales What are the most valuable tasks that you can complete, to account for your best results? Answer this, and you’ve got the answer to life, the universe and everything. Manage Time The truth is we’re not actually that busy. We prioritise our time for the tasks that matter – whether for our business, family or wellbeing. It’s one of the most precious commodities in business – even more so than cashflow, sales, profit and our employees. Today, more than ever, time means money. Have a power hour: start with critical emails and critical jobs and power through Limit meetings: keep meetings only to the most significant (preferably 6-8 maximum). Make sure there’s an agenda to address points to keep it flowing, and have someone take notes for distribution once it ends. Have one day a week meeting-free Set daily goals and a timetable Schedule your email time into your calendar Set weekly check-ins to monitor the progress of your goals Know exactly where your time is going: online time manager toggl will show you what you really get up to Scale & Automate In business, we need to find the most sustainable ways for growth. Automation is the answer – especially when it comes to time-consuming processes. Set up and use templates Know when to delegate and when to outsource: trust in the people you’ve surrounded yourself with Streamline accounting with online cloud programs like Xero, MYOB and Quickbooks Online Communicate efficiently by cutting back on emails with messaging systems like Slack Project manage online: if lists are good enough for Sir Richard Branson, they’re good enough for us. Asana takes lists that step further as a wonderful online project manager to make working with teams and completing tasks a dream Zapier Asana with your calendar to automate meeting project deadlines Schedule your social media: reduce the task from 30 minutes per day to 90 minutes a week with great schedulers like Hootsuite or Buffer Morale To The Story? Even though these are great tips, there is actually no such thing as hacking productivity: it’s about how and when you work best. For all the “productivity hacks” out there, you won’t really know what works until you make it work for you. If waking up at 4.30am every week day is your answer to managing your time, or you find your power hour is at 10pm, then make it so: just make it work for you without all the guilt, tags and strings attached. The immense responsibilities of running a business can’t be achieved when you neglect your health, mismanage your time and run around doing everything while achieving nothing. Finding exactly where you spend your time is the first move in making your business work. Once you know which top 20% of your tasks account for 80% of your results, invest your time there: where you’ll have the answer to life, the universe and everything.
Is Your Business Facing Liquidation? Don’t Lose Your Home!
Whether you’ve been advised to do so, or simply feel as though you have no other option, liquidation is a drastic and terrifying situation for the uninitiated. It’s no surprise that we are inundated with directors who are worried that their homes or other personal assets might be dragged down with the business. The Good News In all likelihood, your home and other personal effects will be entirely unaffected by a liquidation. A company is a proprietary limited entity. The ‘limited’ part of that statement indicates that the owners have limited liability for the debts incurred during the operation of the business. As such, you as the director are protected under legislation during a liquidation process. The problem is that liquidation is such a complex beast. We have talked about some of the tangles here, but there are some circumstances that should concern you. If any of the following apply to you, consider seeking some professional advice. When You Should Be Concerned Unsecured debts are usually nothing to worry about. You do need to worry if: Your debts are secured – Specifically if they are secured by you personally. In this case, the creditor is entitled to recover its debts from you if the liquidation does not satisfy the debt. The ATO has issued you with a Director Penalty Notice – This could involve personal liability, for example if there is outstanding super or PAYG tax owing. You have signed a personal or director guarantee – You are personally liable for debts incurred in this manner. You think you may be deemed ‘reckless’ – that is, if you’ve sought out debts where a ‘reasonable’ person should have realised the business could not resolve these debts, you might be personally liable. This is sometimes hard to figure out because these terms are legal, not common sense. If this is the case for you, talk to a lawyer first and foremost. What Happens When a Company Goes Into Liquidation in Australia? When a company goes into liquidation, its assets are sold off to pay creditors. A liquidator is appointed to oversee the process, and the company ceases operations. Creditors are paid in a specific order, with secured creditors taking precedence. Shareholders are typically last in line for any remaining funds, and they may receive nothing if there are insufficient assets to cover all debts. What Happens to a Director of a Company in Liquidation? As a director of a company in liquidation, you have certain duties and responsibilities. You must cooperate with the liquidator and provide them with all the information they need to wind up the company’s affairs. You must also keep the liquidator informed of any changes to your circumstances. In most cases, you will be personally liable for the company’s debts if you: Traded the company while it was insolvent, knowing or being reckless as to whether it was insolvent. Failed to keep proper books and records of the company. Engaged in fraudulent trading. Misappropriated the company’s assets. The liquidator can investigate your conduct and bring legal proceedings against you if they believe that you have breached your duties. Additionally, even if you are not found to be personally liable for the company’s debts, you can still face other consequences, such as: Being disqualified from being a director of another company for a period of time. Having a negative report made against you by ASIC. Having difficulty obtaining credit in the future. Don’t Be Complacent. Liquidation is a serious matter, and many businesses have faced it in recent years. In fact, you can find the list of companies in liquidation in the ASIC website. So if you are struggling financially, seek help immediately. Contact us today at 1300 181 220 or book a free consultation to help you protect your business.
How Putting All Your Eggs in One Basket Can Be a Good Thing
Debts are an unfortunate reality of any business undertaking. They are a cornerstone of rapid growth, business stabilization, and financial security if managed correctly. Unfortunately, seeking loans and finance options is often a piecemeal game. It’s common for the average business owner to have a number of debts owed to a number of creditors. Multiple Debts Are an Unnecessary Headache Sourcing finance options from several different lenders is a clever option for a growing business. A savvy business owner has a keen eye for a lower interest rate or cost-saving deal. However, managing repayments to all these different brokers can be extraordinarily time consuming. More to the point, it exponentially increases your chance of missing a payment or irritating a creditor accidentally. It also makes negotiating re-payment, should you run into financial difficulties, more difficult for each creditor you need to approach. It doesn’t have to be this way. Debt consolidation is a useful operation for any successful business owner and allows astute directors the opportunity to seek multiple finance options without any of the headaches. What Is a Debt Consolidation Loan and Its Benefits? In short, debt consolidation is the process of seeking a loan with which to pay off all (or many) of your other debts. This makes managing your finance less complex, cuts costs on fees and charges, and makes negotiations far simpler. This under-utilized tool can be an extraordinary boon for any business: Fewer repayments mean fewer interest rates, fewer fees and fewer charges. You’re already saving money. Larger loans tend to provide access to more features, like fixed interest rates. Fewer creditors mean that negotiating terms is far easier. Interfacing with creditors regularly to ensure their satisfaction and maximize your benefit is key to getting the most out of a finance option. Consolidation makes this process far easier. Reasons not to consolidate While debt consolidation is a great tool for any business owner, there are some instances in which the risks outweigh the benefits: Are debt consolidation easy to get? Entering into a new finance option often requires upfront costs. You need to be able to bridge this gap. More broadly, you need to make sure you’re not just going to run up more charges with other lenders, or if so, that you’ll be able to manage those other debts concurrently. Security! What are you going to secure your loan against? Often, large loans require you to secure it against some asset. Be sure you choose something related to the business and ideally something non-essential in case things go sour. If you’re considering securing it personally, then you need to be willing to have a creditor come after your personal assets if you can’t make the payments. Can I Get a Debt Consolidation Loan With Bad Credit? Of course, you can get a debt consolidation loan with bad credit, but it may be more difficult and expensive than if you had good credit. Lenders will be more cautious about lending money to borrowers with bad credit, so they may charge higher interest rates and fees. You may also need to have a cosigner or collateral in order to be approved for a loan. Are Debt Consolidation Loans a Good Idea? In summary, debt consolidation can be a fantastic tool for a growing business to better manage the unavoidable debts arising from business ownership. By laying out a clear plan and being aware of the risks and opportunities, you could save a great deal of hassle into the future.
