Extreme Solutions to Financial Problems
You may choose among your creditors the ones you need
to pay by arranging individual settlements. Many suppliers
will consider foregoing all claims on overdue accounts
if you agree to promptly pay a portion of their claims.
Some of them may even continue conducting business with
It is difficult to predict which suppliers might be willing
to consider an individual settlement and which will not.
The only way to find out is to ask. Before proceeding,
however, make absolutely sure that you want to pursue
this course of action. It is possible that such action
places a risk on the size and availability of your future
credit lines. If you do proceed and the size of the debt
to be forgiven is significant, get an agreement in writing
before you meet the payment.
A general settlement for all creditors is a much more
serious step than pursuing individual settlements with
selected creditors. General settlements are often made
when companies are one step away from bankruptcy. They
can sharply limit your ability to obtain future trade
credit and debt financing.
However, seeking a general settlement for creditors is
almost always a better solution than filing for bankruptcy.
Be aware, though, that creditors don't always agree to
Often, a settlement for creditors is arranged after a
business has decided to close its doors. But it is sometimes
pursued by businesses that plan to stay open although
they frequently emerge as scaled-down enterprises.
If you are considering this option, consult with an experienced
Bankruptcy is an option of last resort. Even if you
are completely out of money and have no intention of continuing
with your business, it isn't necessarily the best course
of action. Often, informal individual settlements or formal
general settlements offer the best solution.
A voluntary bankruptcy, however, may allow you to pre-empt
the legal actions of unsympathetic creditors. It may allow
you to hold off payments to creditors while you come up
with a new business plan. But it is important to consult
with a lawyer before taking this option.
Sometimes creditors will try to force a business into
an involuntary bankruptcy. They will pursue such action
if they feel that the company will not make a rapid turnaround
and that there will be little chance of realizing payment
Any type of bankruptcy involves tremendous legal and
accounting costs. And, before any creditors realize payment
on their debts, the lawyers and accountants get paid first.
A bankruptcy will also require a great deal of management
effort and energy over an extended period of time. And,
of course, it may scare away some of your vendors, customers,
Come up with a bottom line goal and set a total companywide
spending figure. Review each of your functional areas
and determine where you can make cuts without doing long-term
or irreputable harm to your product quality or sales efforts.
Do this with the input and guidance of your key personnel.
Never try to hide serious financial trouble from your
employees. Inform them of the problem. They are probably
aware that it exists anyway. If you aren't honest, the
rumors may fly, and people may assume a scenario worse
than the reality.
Encourage your staff to make savings suggestions. It's
a good idea to offer financial incentives for great suggestions
if possible. Creating an awareness of the problem and
offering each employee the opportunity to be part of the
solution boosts morale and breeds loyalty even in the
worst of times. If employees participate in suggesting
cost-cutting measures, they are more likely to be cost
conscious every day as well.
Everyone avoids layoffs. But it is better to lay off
a few people at once rather than let everyone go because
you are shutting your doors. Employee attitudes can be
volatile during a downturn in business. You need to be
very careful in your handling of employment issues during
If you can avoid a layoff by freezing hiring and assigning
idle workers to vacant positions in other job functions,
do so. Or consider having everyone pitch in a little to
cover an open position.
Avoid cutting salaries if possible. If you must make
cuts, start with your own. Key executives should be next
in line for pay cuts. Cut only the salaries of your rank-and-file
employees as a last resort. But definitely cut pay before
cutting benefits. Employees are generally more attached
to their benefits than to the specific amount of their
Another step you should consider before laying off staff
is instituting a four-day work week. You may want to discuss
this option with your employees and get their feedback
If you must proceed with a layoff, don't do it incrementally.
Do it once, and then reassure the remaining staff that
their jobs are secure. Be sure that the cuts you have
made are sufficient enough to forestall a reoccurrence
for some time to come.
By Source Streetwise Small Business Start-Up