The Debts are Piling Up – What are the Reasons Behind it?

A business venture is nothing but starting a new business.  Normally when a new business is started, it is done at a small level. The amount of capital invested is less and targets set initially are also less.  This is not to degrade the capability of the businessman.  Experts’ advice that any new business started should be done on small level initially.  The success and profits should be earned step by step.  The reason behind this advice is that a sudden rise in profits or success and the downfall the very next day is a bad indicator of the business prospects.   It is not that when you are earning success and high profits you zoom and when you are incurring losses, lose all your hope and close the business. Even though there is no profit, the business should be able to maintain its expenses and run the show.  That is the spirit any businessman should have.  No matter what the situation is, he should try to run the business in all circumstances-whether profit or loss. 

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In the case of profits, you will have many options for saving it.  But in case of loses, you will be left out with only debts.  The reasons are innumerable.  Every businessperson when he starts his business venture should make up his mind to run the business no matter what circumstance arise.  He should tackle all the problems.  Only then he will be able to achieve success in life.

In the case of debts, he need not worry about it too much. There is a solution for every query.  The only thing required is time and patience to solve the problem.  When such a situation, and you are not in a position to sort out the problems, take some professional advice.  This will help you in dealing with things tactfully.

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Why people in business take debts?

Normally dealing with debts is a talent. As a businessman, you have to take loans to meet operating expenses.  I know you have capital, but that you have already invested in the business venture no matter it is small in size.  The main rule behind taking a loan is to meet the operational expenses and repay the debt within the stipulated time.  But when you are not able to repay the debt in proper time, it piles up and becomes a huge amount which will be a big headache for you.

There are certain options like debt consolidation, debt relief, debt settlement, etc. to tackle the debt related problems. Let us concentrate on debt consolidation.

Debt consolidation is nothing but summing up all debts which have to be paid and take a big amount as loan equal to the consolidation debt. When the business venture is small in size, the number of expenses also will be less provided you have paid earlier expenses promptly.  If that is not the case, then definitely the debt amount will be huge.

Procedure for debt consolidation:

• ·      Make a list of all debts to be paid as on date.
• ·      Categorize the debts which can be settled by mere negotiations.
• ·      Then whatever is remaining, sum up all the debts.
• ·      Now your debt is consolidated.  You will have to take another loan equal to debt consolidation amount.

The procedure looks small and easy. But when it is actually done, the businessman finds it difficult.  What do you think are the reasons for the debts piling up?

·         Lack of market knowledge: Since the business venture is new, the businessman may face a lack of market knowledge.  So, to get loans, he may approach some lenders who charge a high rate of interest which becomes a burden to the businessman.

·         Lack of profits: When appropriate sales are nil, there is no profit.  No profits mean you cannot meet your operating expenses.  Though the capital is invested, for how many days will you use it?

·         Improper management of debts:  When the debts are paid without any planning, there will be a shortage of funds.  Normally debts with huge amounts have been cleared either fully or partially.  If not, the interest amount that is will increase the debt amount.

Improper management of funds:  As the venture is small, you make investments your funds in purchasing assets for the business.  I know it is important to build up a reputation, but you should concentrate more on production and sales activities to run the show.  When the required funds are spent on the purchase of assets, the amount is blocked in those assets.  Instead, it could be used to purchase raw materials which would have been used in production activities.

Concluding that debt consolidation amount is fine.  But will you actually get a new loan when you have not cleared the old amount?  This is the question faced by almost every businessman.  But it has to be answered, and an appropriate solution has to be derived. Else, the operations in business will come to an end, and when there is no production, sales is out of the question which leads to no profit.  Creating something is good, and when you have given life to it, you need to nourish it properly so that it grows into a big thing.  The same concept has to be applied in business.  As a businessman, you have to take care of business activities and ensure that the operations are taking place in the business.  For this, first of all, the operating expenses have to be cleared.

As the business venture is small, there are few chances of getting debt consolidating loan.  However, based on your contacts with the creditors, you can always approach them for a new loan.  Seeing your business profile, you may get a loan but with strict terms and conditions.  However, to run the show, you are forced to take the loan and clear off all the expenses and restart your business activities.  One strong advice is that getting debt consolidation loan amount again is impossible because some people consider it your inefficiency in managing your expenses.  In the market, if this is the comment you get, then no one will come further and invest in your business which is not a good sign for the progress of your business.