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Smart
retailers know they must be quicker and more responsive than
ever in order to win and retain customers.
This is especially true for independent retailers who
can’t match the price advantage of their national-chain
competitors.
Focused on
pleasing the customer, making the sale, and posting a
profit, retailers--especially smaller ones--can easily lose
sight of the importance of cash flow.
Sales must generate enough cash to cover not only the
retailer’s fixed costs (such as salaries and payments on
loans and leases), but also promotions and other variable
expenses. But,
“so long as more money seems
to be coming into the business than going out, many small
business owners do not give cash management a second
thought. And that leaves them vulnerable to all kinds of
dangers,” writes Isabel M. Isidro, Managing Editor of
Powerhomebiz.com.
One of these
dangers is that unpaid debts and bills can simply overwhelm
the retailer. Even
closely held retailers who are profitable are likely feeling
a heavier debt burden lately.
That’s because many private-business owners rely on
credit cards or home equity loans—increasingly ones with
variable rates—to launch or expand their operations.
Besides being more costly to use as interest rates
have risen lately, many credit cards’ minimum payments
have jumped to 3 or 4% (from the typical 1.5%) of the
outstanding balance as interest rates have risen.
Consider
Your Options
As
an independent retailer, what can you do if your company’s
debt load has become a problem?
Your
first inclination probably will be to do nothing and try to
“ride out” the rough patch.
Unfortunately this approach often makes the situation
worse. Consolidating
your debts with a new loan is another option, but most
likely you will have to put up collateral such as your home
or major assets of your business.
Plus, the long-term cost of the consolidation is
often greater than what you currently owe on the debts.
If
the financial situation is beyond saving then bankruptcy is
third way to go, but not as attractive as it used to be: The
2005 Consumer Bankruptcy Reform Act has unintentionally made
it harder for small businesses to wipe away debt.
Even when a credit card is opened in the name of a
business, the card’s terms require the owner to be a
personal guarantor. Therefore
you are liable even if the business goes bankrupt.
What
About Debt Settlement?
As
a result, more business owners are discovering debt
settlement. If
you hire an experienced, professional negotiator who deals
with each creditor individually, some of your debts could
shrink by as much as 70%.
Always look for an experienced pro who will also
handle all calls and letters from creditors—allowing you
to focus on rebuilding sales and curbing expenses.
A
key question that any retailer should ask a debt-settlement
firm is how it earns and collects its fees.
Ideally, the fees should be based solely on
performance (the dollar amount of debt savings achieved for
the client). This
makes debt settlement a virtually “risk-free” solution
for the client: no fee to pay until each negotiation is
completed to the satisfaction of both you and your
creditor(s).
That’s
not to say that debt settlement is perfect, or appropriate
for all retailers’ financial situations.
It’s primarily for companies already behind on
their payments and looking to make a fresh start.
Because they are “in arrears” on their debts,
these firms’ Dun & Bradstreet ratings usually have
already dropped. Debt
settlement activity may initially lower these ratings
further, but in most cases it’s also the first step in
rebuilding the client’s rating—precisely because
payments are now being made where they weren’t before.
The
bottom line: If debt is choking off your company’s cash
flow, you’re not alone.
Many companies are struggling against stiff
competition and the slowing economy.
But don’t assume your firm’s debt problem will
take care of itself. While
debt consolidation or bankruptcy might seem like the most
obvious answers, debt settlement could get your business
back on track financially with far less cost and stress to
you.
Steve
Newman is Principal of Performance Source Inc (PSI).
Since 1963, PSI has helped thousands of clients save
millions of dollars and satisfy their creditors without
borrowing money. Under
the company’s risk-free process, clients decide which
payables they want PSI to negotiate, they approve (or
decline) all proposed settlements in advance, and owe PSI
nothing if a settlement is not reached or not accepted.
And because PSI also handles all contact with
clients’ creditors, clients are able to focus on growing
their businesses. Steve
can be reached at 800/883-5080, or snewman@psi1963.com.
The company’s web site is www.performancesourceinc.com.
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