“Debt is like any other trap, easy enough to get into, but hard enough to get out of.” –Henry Wheeler Shaw
Business debt can cause cash flow issues within your business.
Business debt can lower your profit and profit margins from payment of interest or financing charges.
Business debt can lie to you and deceive you and I will tell you how and why…
Business debt, more often than not, can become a cancer, eroding an otherwise healthy business while living and spreading unnoticed and undetected.
Excessive business debt can cause insolvency and even bankrupt your business.
[BUSINESS DEBT CREATES RISK]
Business lenders that provide business debt financing can ravage your business if you end up not being able to continue to pay them. They can use collection and forced liquidation attempts that can disrupt your business operations including:
forced sale of business assets; involuntary seizure of accounts receivable or cash assets; contact your clients within their rights as UCC lien holders; sue you and your business in court, etc
Secured business lenders with valid UCC liens filed, or contract rights to file UCC liens, can completely disrupt, beat down and fatally injure your business with very little effort in short order with these options available to them.
Business debt creates business risk. Taking on business risk by entering into a financing agreement (bank loans, lines of credit, credit cards, merchant cash advance MCA, private loans, and other business financing and credit products) is an extremely dangerous proposition for your business.
Want us to look at your Merchant Cash Advance MCA fundings for you free of charge?
[ALWAYS HAVE A PLAN]
If you do not have a detailed plan for the business debt you are taking on, then you do not have a logical and realistic way to pay the business debt back over the amortization schedule or borrowing period.
[HOW LENDERS PRICE LOAN COSTS AND CHARGE FEES FOR LENDING MONEY]
A business lender can only ever get back the capital that they lent to you (the principal) and the interest or financing charges that were agreed to in the loan or financing agreement.
That’s it. Nothing more.
Lenders normally do not share in the upside of the business (some do).
So, business lenders take an extraordinary amount of risk and they charge appropriately to take on such risk considering their expected amount of loss based on the level of risk that they “lend into”.
We can provide you with a FREE Business Debt & Cash Flow Assessment here:
[COST OF CAPITAL ON BUSINESS FINANCING]
· How much is the current “cost of capital” on your outstanding business financing?
· How much is it costing you to borrow the business debt that you have right now?
· And what is the time period for pay back of the business debt?
· How long do you have use of the business capital before you have to pay it back?
· Is it a long enough time to use the debt and cheap enough to make sense to borrow it?
Business debt is sometimes too expensive for a business to afford since some finance companies and lenders price borrowing costs based up their risk which is determined by how much risk THEY take across all their borrowers.
So, to be clear on this, a business lender has to charge appropriately to compensate themselves for the risk that they are taking (9 out of 10 small businesses fail or close, eventually). That is a high risk.
So, a lot of business lenders charge very high interest rates or rates much higher than current market rates at banks, credit unions and traditional loan institutions. Charging these higher interest rates to cover their own risk more often than not, causes failure or near failure of a lot of businesses. This typically is the case because the expensive and shorter-term high business debt payments cannot be met by the company. A lot of times, the debt burden becomes so great that the company cannot even refinance the business debt with another lender to a longer term with much lower payments and less interest costs.
Businesses that cannot refinance their business debt still have options to deal with burdensome business debt loads. They can Restructure their business debt. (read our recent article titled “Business Debt Refinancing vs Restructuring: One or the other, or both?”). With a proper Business Debt Restructuring Plan, cooperative creditors and business vendors, a business can maintain regular operations and remain a going-concern until the debt distress is cleared up according to the Restructuring Plan. Then emerge from the distress and continue along its path to growth and greener pastures.
[IMPORTANT NOTE: Never, ever, ever, ever use a Debt Settlement Company, especially one that tells you to stop paying your business creditors AND TO START PAYING MONEY INTO ESCROW. This is the worst decision that a business can make when dealing with business debt stress. There are many better and less risky and less messy ways to deal with business debt challenges.]
When a business is having issues with business debt a clear and concise Restructuring Plan (including a 13-week cash flow plan) is imperative to have in place to be able to properly manage the business debt lenders and debt payments while steering the business and its operations and cash flow back on course.
At Bernarsky Advisors, we have worked with thousands of businesses on Restructuring Plans for business debt as well as other business reorganizations strategies.
Remember, there is no substitute for experience. My partners and I can help you. We are on your side of the table. We have been through these challenges countless times and can help you emerge victoriously.
Well then what are some of the major signs and effects that business debt has upon a business so that we can properly spot and identify the issues quickly?
[COMMON WARNING SIGNS OF BUSINESS DEBT ISSUES, DISTRESS & CHALLENGES]
· Low average balance in business banking account(s)
· Scrambling for cash to pay liabilities (cover payroll, vendor payments, and other expenditures)
· Contributing personal cash and extending personal credit to the business frequently
· Frequently taking new business loans and financing
· Renewing or re-borrowing with existing lenders or business merchant cash advance MCAs
· Paying high interest or high financing costs above reasonable market rates (check the Wall Street Journal prime rate and add 10% or so to it; if your interest rates are above that is surely a high interest cost business loan or financing)
[TIP: to calculate or estimate a general interest rate take the total cost of money borrowed divided by the total cost of the borrowing divided by the number of years of the financing term; i.e.- borrow $100,000 over 6-months with costs of capital of $10,000; $10,000 / $100,000 = 10% / 0.5 years = 20%; general interest or APR or cost of capital would be 20%]
borrowing more because there is not enough business cash or cash flow
late payments towards business vendor liabilities, suppliers and other business expenses
monthly bank statements showing ending cash that is significantly less than starting cash
recent profit and loss statements showing a significant loss
spending a few hours or more per week searching for business loans and business funding
getting rejected by any lenders for a business loan or business funding
[FIXING BUSINESS DEBT ISSUES]
The above list is a good number of the major signs of business debt issues but it is not the complete list. If your business is experiencing any of these issues feel free to set up a free consultation call with us to discuss your situation in detail. (https://www.bernarskyadvisors.com/consultation/qualifier)
This initial consultation call is complementary to you. We can review your situation in its entirety and provide you with any immediate advice that is needed for an urgent situation if you are in one. After our initial call we will analyze your business performance over the last 12-months by reviewing your business bank statements, business debt contract economics and other documents that we may request.
Our business analysts will look at your business cash flow to determine if it's positive or negative as well as identify issues being caused by business debt, then we will provide you with a PDF report of our full analysis and all of our recommendations to quickly fix and affect change within your business.
All business problems, especially business cash flow and debt challenges are best solved quickly and by making informed decisions after reviewing all of your options.
Again, experience is paramount here and experience can help save you from possibly making the wrong decision or from the worst-case scenario, which is inaction.
[WHAT IS THE PRICE OF INACTION?]
Inaction in the face of a pressing business issue or problem typically results in an absolute disaster and is always ill-advised.
In more instances than I would like to think about, my business clients and potential business clients hesitate and wait too long to take the proper action to fix a business problem or worse yet take no action at all.
The last thing that I like to hear or want to hear as a business advisor is “You were right. I wish that we listened”, when a client does not take recommended action or deal with a pressing business situation swiftly.
Fortunately for me I rarely ever hear that since most businesses experiencing stress or distress are on a sliding slope to failure and if not corrected and turned around, then they will disappear never to be heard from again.
No one calls or contacts myself or my firm to say, “You guys were right. We should have done...”.
Instead, I never ever hear from them again and they join the “9 out of 10 club” which is always unfortunate and frankly not necessary.
As Peter Thiel, one of the most successful investors in startups and venture capital in history says:
“I think people actually do not learn very much from failure. I think it ends up being quite damaging and demoralizing to people in the long run, and my sense is that the death of every business is a tragedy.”
[WHAT IF I HAD ONLY…]
One of the most difficult metrics to measure is the "what-if-I-had-done” metric, meaning looking back and judging or measuring what might have happened if a business had done “x” or not done “y” instead of “z” or done nothing (take no action).
It is like unwinding or backtracking the “Butterfly Effect”.
Either way the point is that, more often than not, in my experience myself and with my clients, inaction can be the biggest death blow to a business.
So, when your business is stressed or distressed in any area, and especially in the areas of cash flow or business debt, it is mission-critical to make informed decisions by seeking advice from seasoned business advisors and professionals to be sure that you protect the most precious asset that you have created, which is your business and its cash flow.
Protect this asset above all else and take on as much advice as possible until every shadow of a doubt is removed, and you know that you are making the right decision so that you can take the correct action.
Listen to advice. Decide. Take action. (Repeat.)
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If you would like to discuss your business issues to be fixed or goals to be achieved on a video or phone meeting, setup a free consultation call here:
https://www.bernarskyadvisors.com/consultation/qualifier
I look forward to meeting with you.
Until then... Keep pushing!
Godspeed.
Stefan Bernarsky
BERNARSKY ADVISORS
Business Finance & Strategy Consultants
Refinance. Restructure. Reorganize.
www.bernarskyadvisors.com
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