Sometimes a debt problem is indicative of a profit problem. We want to 
help borrowers clear out debt problems by using the most appropriate debt solutions. Almost all problems have solutions. It is a case of finding the solution that works best in each particular case for each particular borrower
If the problem is that profits are poor or non-existent, that is, the operation is making losses then it is important to tackle the profit problem. The debt problem is unlikely to be solved permanently without the profit problem being solved.
A good move is to separate out expenses that are relatively fixed from those that are fairly variable. Put the fixed expenses like council rates aside for a while and focus on variable expense like power, wages, rent, materials.
Look to see how much would have to be cut off the total of those variable expenses to turn the loss into a profit. Look at it as a percentage . What percentage of variable expenses must be removed to make the business or farm profitable. Once you have determined what percentage of variable costs needs to be cut for an appropriate profit, then apply the same percentage off each variable expense.; then examine fixed costs to see how you can cut the same percentage off them to achieve enough profit to start paying down the debt.
It is easy to do on paper but quite different to do in practice but if you have worked out what you need to reduce in order to make a reasonable profit, you can make some very hard decisions and bring your expenditure down. If you find that too difficult then contact me via my website at GBAC and I will help you if you wish.
Once the business becomes even a little bit profitable, draw out a small but ever increasing sum & deposit into a savings account. Don’t worry about the interest differential. What you want is to save enough cash to clear your debt in a substantial way. Match withdrawals to the way money comes in (weekly, monthly, livestock sale time, crop sale time). This stops you spending and helps saving. For one company I started saving $10 week as we tackled their $20,000 annual loss. Eventually I was putting away $1,000 a week and they were making money hand over fist.
When borrowing always ensure the contract allows you to repay parts or all of your debt at any time. This is important. The lender makes money by keeping you in debt. You make money by clearing debt so the interest money comes to you instead. Repayment asap is a very good debt solution.
Another precaution to take is to draw up Loan Impact Statement or have one drawn up before signing the loan documents – LOO or contract – have your banking consultant prepare a loan impact statement for you to show you how the loan servicing and repayments will affect your business over the next 5-10 years at historical profit levels. Do not fall into the trap of budgeting for a profit increase after you borrow. That is the most common cause of debt problems “This year and last I made a loss, but next year and the year after I will make a profit” – dreamtime idle speculation. Always work on actual results rather that wishful thinking. If you don’t have a loan consultant, don’t contemplate using a broker paid by the bank or worse a bank officer. Their job is to make the most out of you. Contact me through my website and I will help you get a good idea beforehand of what borrowing is likely to do to your enterprise.
This week I spoke to a couple who had borrowed $2 million for 3 investment properties site unseen on interest only loans. Those are loans for people who can’t afford to repay a loan. The figures the broker told them they would earn were lies. They now stand to lose those investment properties and their home unless they stand up to the bank and we make the bank write off a lot of debt.
I think they will decide not to come to me for assistance and will therefore lose all four properties and all the money they have sunk into them. They will probably end up bankrupt and homeless with 4 children. It is just so sad to see it happen when a simple Loan Impact statement would have shown them the risks.
A bit of money spent with us would probably have saved their home, possibly debt-free. It is amazing the amount people will spend on taking risks and how little they will spend on finding solutions to remove those risks.