It isn’t just the way a business performs that governs whether it gets into trouble through debt. At any one time there can be multiple factors outside management control that can change the business landscape almost overnight.
Whether you are managing a family business or working as a sole trader or freelancer, the financial realities of running a business means that debt can rear its ugly head in various ways. The key to handling this commercial reality is taking the initiative when the situation arises and tackling problems head-on.
By its very nature a smaller business will have less liquidity and fewer resources than a larger corporate company. This fact alone makes them more at risk of spiraling into debt, simply because large-scale ‘rainy day’ funds are unlikely to be on hand. Of course, most well run businesses will be set up to deal with various fluctuations in cash flow and customer demand quite easily. This can be handled by having various credit agreements in place with suppliers or the usual forms of funding such as a bank loan or decent overdraft facility. However, larger scale debt can present very real dangers and in the worst cases become financially fatal for a business.
As anyone who was trading when the international banking crisis hit home in 2008 will know, sometimes outside forces can conspire against you in a big way. Funding sources being cut off abruptly, credit terms changing at short notice, loans being recalled ahead of schedule – all of these things can put a business under extreme financial stress.
The best way to tackle any kind of debt, included the type found in your small business, is to be proactive and not reactive. This means planning and then taking action the minute it is needed. Any business owner who avoids opening the mail or taking calls is heading for trouble.
Often this can mean having a ‘plan B’ you can fall back on in certain circumstances. For instance, if a supplier falls into difficulties themselves and you need products on the shelves, you should always know where to turn to should that situation arise. Likewise, having a ‘recession plan’ where you could institute certain cutbacks and cost saving measures can help get through rough patches that might last a little longer than you would like.
Of course there are some cases where you simply won’t be able to deal with things on your own and need to seek third party help.
Out of court restructuring in order to restore liquidity, negotiated debt settlement agreements and even bankruptcy can all be the solutions that can be for the best sometimes. Suzzanne Uhland is a Partner at O’Melveny & Myers LLP in San Francisco who has earned the distinction of being included in The Best Lawyers in America, Orange Coast Magazine’s Best Lawyers in Orange County, and Profiles in Diversity Journal’s 2010 edition of Women Worth Watching. Her vast knowledge of business law means that Ms. Uhland’s areas of expertise covers a wide range of critical business matters built up over 20 years of legal experience, making her a perfect choice for anyone wishing to evaluate their business situation and find the best solution.
Take the initiative
When faced with running a business that has fallen into debt, the only thing to do is to take the initiative. Whether that means putting into place long held contingency plans, or seeking out the advice of experienced and dedicated professionals, only by taking back control can you hope to find a resolution that will be the best in the long run.