Difficult times are not when you should simply hunker down and wait out the storm. They are times for courage, creativity and action – just as it is every other day. Letting time drift by and waiting for a better day is not a way to push results.
Let’s say things are really getting tough … as they do sometimes for each and every company. Maybe you’ve had some bad press or laid off some employees. Maybe you’ve gotten a little late on your trade payables or debt obligations. Creditors naturally fear the worst. Couple this with fear of a prolonged economic slowdown and you’ll have some creditors that may be ready for options.
What does the future hold? Nobody knows. But people like options. Maybe your creditors would like an alternative to the slow-pay “wait and see how things go” ride they’re on.
Offer to pay them a lump sum today if they’ll forgive a portion of the debt, maybe 25, 50 or 75 cents on the dollar, depending on your situation and theirs. Explain that you remain committed to paying them off in full, but given the circumstances, you might be willing to dig hard and try to drum up some cash if they’d like to just make a deal to reduce their downside risk. That is, maybe they’d like to receive a sizeable cash payment today – albeit less than the total that you owe them – as payment in full. They might jump at the chance and if things turn up for you it will end up being a good deal for you as well. You know, the proverbial lemons into lemonade?
If you work out a deal, be darned sure to get the agreement in writing and signed by an appropriate authority of the lender. But be careful not to sour the relationship. Be sure they see the option as a positive development, one that allows them to trade an uncertain future with potential for an unfavorable outcome for a certain outcome that is acceptable. Finally, forgiveness of indebtedness will be reported as income and could trigger some income tax. However, if your business is losing money then you’ll have losses to offset the income.
This article was written by the experts at The Business Owner. If you are the owner of a private business, go to www.TheBusinessOwner.com or call us at (800) 634-0605 for more no-nonsense how-to information.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
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