When it comes to running a business, debt is necessary and can be a good thing- but it is important to note that taking on the right amount at the right time can make all the difference in the world. According to the Small Business Administration, approximately 50% of small businesses fail within the first 5 years due to poor credit arrangements, insufficient capital, and too much debt.

For most small businesses, it makes sense to borrow when you need to finance growth/expansion or improve cash flow. However, the Great Recession over the last few years has made things difficult for small businesses that have overextended themselves and don’t have the ability to make back what they owe.

Small businesses located in Southeast Wisconsin may benefit from working with Nolan Accounting. We can help you get your finances under control and help you manage your small business debt well. We can help you with bookkeeping and accounting tasks, as well as payroll and tax prep.

In this article, we’ll offer you some tips for managing your small business, whether you want to save your business or allow it to close.

Save Your Small Business

The first option many small business owners consider when they are trying to manage their small business debt and save their business is to put their own money into the business. However, this is risky and has failed as much as it has succeeded. Therefore, it should only be done if it can be justified as a short-term solution that promises a long-term payoff. Below are a few other options for managing your small business debt while saving your business:

Cut Costs

If you don’t have the private funds to invest into your business, you’ll want to find areas where you can cut costs. If you have equipment that you are not using, consider selling it. If you have space that you’re not using, consider subleasing it. Both of these will give you an infusion of funds. Another option is to reduce your workforce. While this is not the most attractive option, it may be the best one if you want to save your business.

Reach Out to Customers and Suppliers

Make sure that you keep in touch with your customers and look for ways to increase exposure and improve your business model- ultimately increasing your revenue. You may want to consider offering a small discount for customers who pay their invoices early. You may also want to contact suppliers to defer payments or arrange discounts.

Contact Your Creditors

Take some time to reach out to each of your creditors and let them know what you are going through. When you face your debt early, it’s a lot easier to manage it than it is if you ignore your lenders. When you ignore them, they assume you don’t want to handle the debt and may move forward with legal action- which is not a situation you want to find yourself in. Speak with them about restructuring your payment options, increasing your credit line, or reducing your interest rates.

If you’ve got multiple creditors/collection agencies, consider outsourcing your debt issues to a debt-relief company. A reputable firm will be able to negotiate with creditors on your behalf to settle debts for less than you owe.

Consolidate Loans

If you have several business loans, consider a consolidation loan. This will pull all of your debts together so that you have one payment, typically reducing your monthly cost without impacting your credit. A debt consolidation loan allows you to deal with one creditor instead of several and may help you get a lower interest rate. This process is often facilitated by a debt consolidation company that negotiates the loan, takes payments from your business, and pays off your creditors. The loan may be secured with business assets or unsecured if your credit is good enough.

Chapter 11 Bankruptcy

If nothing else is working, you may want to consider Chapter 11 bankruptcy. This option should only be used if your debt challenges are temporary, and your business is otherwise viable. It is important to note that this process is expensive and complex, and you’ll need an experienced bankruptcy attorney. If your assets are worth less than your debt, filing bankruptcy may allow you to pay what your assets are worth instead of the entire debt balance.

Closing Your Small Business

If your small business debt is too much to manage, you may want to consider shutting it down. Of course, it’s important to understand that locking the doors and walking away is risky- your creditors may come after your personal assets to pay off your debts. Below are three ways to handle shutting down your business to manage your small business debt.

Sell Your Business

Your first option may be to try selling your business to pay off your debt. Typically, it’s much easier to deal with one buyer instead of trying to sell off your assets. Plus, selling may free you from future obligations once your debt is paid off. However, if your debts are more than your available assets, it may be difficult to find a buyer.

Liquidate Your Assets

The next option you have is to liquidate your business and negotiate with lenders to distribute its assets. Since litigation is expensive and forcing you into a bankruptcy would mean they get even less, most lenders will accept a settlement for less than the full amount of the debt.

It is important to note that if you have personally guaranteed a business debt, you will still be personally liable for those obligations unless freed by the creditor.

Chapter 7 Bankruptcy

Finally, if you’ve tried everything else and nothing has worked, you can file Chapter 7 bankruptcy. This will transfer your business to a bankruptcy trustee who will sell the assets, pursue any accounts receivable, pay taxes, and distribute the remaining funds to creditors. If you have any personally guaranteed business loans, you’ll need to file Chapter 7 personal bankruptcy as well. This will allow you to break from your failed business, though it will have a negative impact on your credit for 7 years.


While debt can help your business by improving cash flow or finance growth/expansion, if you don’t take on the right debt at the right time, it can cause complications. A professional accounting firm such as Nolan Accounting can help you manage your business debt well. We work with businesses located in Southeast Wisconsin manage their day to day accounting and bookkeeping tasks, tax prep, and to manage business debt and payroll.