Corporate debt: consequences and how to get out of this situation

Pass by corporate debt It is a highly complex challenge, and unfortunately, around 200 companies declare bankruptcy each year because they are unable to overcome it.

When the accounts start to go into the red and it becomes more difficult to maintain payroll every day, it's common to feel excessively worried and even discouraged.

If you're in this situation, keep your head up, because today's content will cover some important strategies for overcoming this difficult phase. Keep reading!

What is corporate debt?

Before anything else, it's important to understand what business debt is. After all, having outstanding bills isn't always a warning sign.

Corporate debt is a corporate indicator that demonstrates the amounts related to outstanding debts registered with the CNPJ.

This indicator allows you to assess whether debt poses a risk to the business's survival, as having debt is not always synonymous with bankruptcy. 

For example, a company that owes R$10 million and has an annual turnover of R$350 million clearly does not face an imminent risk of bankruptcy. 

This data is then used to monitor the company's financial health and understand its likelihood of remaining operational in the coming months.

When it comes to business, debt can snowball, as it affects the reliability of the credit market, which harms operations.

And, if a company does not have the money or credit to maintain its activities, it will soon lose market share and thus approach bankruptcy.

For this reason, monitoring debts is important to ensure financial control and business continuity.

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Signs of corporate debt 

There are some signs that indicate that your company is going through the debt process.

But, before we talk about them, it's important to say that there's a big difference between a company having debts and being in a situation of serious debt.

In general, debts only become a problem when they exceed the business's revenue and compromise the ability to obtain credit.

This means the company starts operating without any profit, which poses a high risk of bankruptcy.

That said, here are some signs that your company may be facing a difficult financial situation:

Always closing in the red: The company's revenue is not enough to cover all operating costs, and it has not been making a profit for months.

Loss of control over the number of existing debts: If you don't know how many credit cards you owe or how many loans you've applied for, it's worth paying attention.

Impact on operations: When a business needs to reduce the quality of its services or slow down operations due to cost concerns, it is a sign that debt is getting out of control.

As we explained previously, the debt indicator serves as a control measure; after all, the fact that a business has outstanding debts does not mean that it cannot pay them.

The real problem arises when these debts get out of control and begin to impact the brand's survival.

Read also: Renegotiating Supplier Contracts: Here's How! – Valor Notícias.

What are the consequences of corporate debt?

You may remember the example we gave above, of the company that invoices R$ 350 million per year and owes R$ 10 million.

As we have seen, in principle this company has no reason to worry, since with its revenue it can pay off the debt with relative ease.

However, it is important to note that this is a superficial assessment, as everything depends on the company's costs and situation.

Furthermore, we must remember that debts are increasing, so the longer it takes to pay off, the higher the amount owed becomes.

In this case, this may result in some losses, such as:

Loss of credit in the market 

When a CNPJ has any debt, this impacts banks' credit ratings and makes it more difficult to secure loan agreements.

Furthermore, if the business already has an outstanding debt with a particular bank, a new one won't be able to reach an agreement with it until it's paid off. As a result, many entrepreneurs hop from bank to bank to obtain loans, which increasingly limits their options.

Therefore, the more debts are incurred in the CNPJ, the more difficult it becomes to obtain credit to help in times of need.

Reduction of suppliers and service providers

Many suppliers perform profile assessments before providing services, or restrict payment terms to avoid defaults.

So, when a company defaults, its supplier options become limited, which can affect business operations.

And, just like with banks, many entrepreneurs constantly change suppliers because they owe money to their previous one and need to find a new one.

However, this strategy has an expiration date, as over time there will be no options left, and the operation will be compromised by the lack of inputs and services.

Bankruptcy 

The most serious loss in cases of corporate debt is certainly the risk of bankruptcy, caused by impacts on operations.

In many cases of indebted companies, customers notice that the quality of services and products declines over time.

And this is a reflection of the savings strategies to try to recover finances, and consequently save the company.

But in most cases, this works like a sore thumb, as it drives customers away and further reduces revenue.

Therefore, monitoring your business's finances is essential to prevent debts from snowballing and ending in bankruptcy.

How to get out of this situation? Learn 4 essential steps

Although many experts argue that corporate debt is not always a cause for concern, we have seen previously that it is never advisable to be complacent about debt.

This is because interest rates and even the impact of the brand's image on the market can interfere with the business's ability to survive.

With that in mind, we've put together four essential tips to help you get out of this situation and get your finances back on track. Check them out below.

1. Face reality 

Before anything else, it's important that you face this business debt situation head on.

This is because many entrepreneurs approach this issue casually at first, even ignoring it. As a result, their debts grow more and more each day.

Therefore, in the first few months when revenue begins to decline and the first debts appear, pay attention to the problem and establish strategies to reduce the impact and recover the situation.

This will help you deal with a much smaller problem than it would if you left it unattended for months.

2. Look for ways to renegotiate contracts 

Renegotiation is always the best way to prevent financial problems from escalating.

Therefore, if you notice that your accounts aren't adding up, contact suppliers and creditors to evaluate settlement proposals with better terms.

In addition to avoiding financial losses, this will help you keep your doors open, as you're turning a debt into a negotiation, which won't tarnish your brand in the credit market.

3. Establish spending-cutting plans 

Cutting costs is a good strategy for dealing with corporate debt, but it must be done intelligently.

This is because cutting investment in your products will only serve to leave your customers dissatisfied and open the door for them to look for better options from the competition.

Therefore, establish an action plan, cutting unnecessary expenses that can be reduced in times of crisis.

This way, the business will have extra cash to help pay off debts without impacting operations.

4. Invest in strategies to attract business

One of the best ways to overcome periods of financial slump is through revenue, and to do this you need to have customers and a lot of sales.

Therefore, instead of sabotaging your company by reducing quality, seek to establish strategies to encourage cash inflow.

Look for new customers and explore markets, as this will make it easier to raise money without affecting your brand's market positioning.

This way, when the crisis is over, you will emerge from it without any damage to your reputation, and you will still have more customers.

Finally, now that you know what corporate debt is and how to track this indicator, remember to build your company without harming it with thoughtless cost cuts.

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