Working-capital strategies to restructure business debt:
Workouts and cramdowns
This is the emergency phase of your turnaround, implementing key working capital strategies. REMEMBER: The goal is to reverse negative cash flow, stop the bleeding, and start preserving cash to
continue operations.
As I've discussed on other pages, debt restructuring typically involves three groups of creditors:
- Secured debt -- the debt where you have pledged assets or have personal liability
- Unsecured debt -- these are general creditors like trade debt or payables
- Tax obligations
Your goal is to get relief from debt on a voluntary basis, avoiding a Chapter 11 Bankruptcy. The Chapter 11 route typically costs $25,000-$50,000, making it usually impossible for the small
business owner.
Also remember that only 1 in 10 companies survive a Chapter 11 bankruptcy, and those survivors had large cash reserves.
So an aggressive debt-restructuring plan will be a critical component in your business turnaround. You have the potential to reduce your debt by 25% to 60%.
If you have the right temperament and skill set for negotiating with your lenders, you can handle it yourself. All workouts are long, tiring, and frustrating... a complex series of communications,
requiring much time and patience. Successful workouts speak highly of your negotiating skills and temperament.
Otherwise you can hire a professional debt negotiator.
The debt-workout professional will represent your company regarding all small-business debt, and will act as an intermediary with creditors and your bank. For a fee, of course.
Before you begin your debt restructuring, it’s important to know all options and what alternatives you have to work with. In addition you must know what concessions to shoot for, and be prepared
with all necessary financial information supporting your position.
And what's a "cramdown"?
Click to learn more about Debt Restructuring.
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Debt Workout