Starting your own business is a dream come true for thousands of entrepreneurs, whether you’re turning your passion project into your profession, opening a restaurant, or taking your skills and starting your own firm. But it’s a risk – that’s what being an entrepreneur means. Many businesses wind up shutting down when their owners get in over their heads in debt, with their assets sold off and creditors in line to claim the proceeds. The key to surviving in business is knowing where you stand and predicting trouble before you’re in it. The sooner you know you can’t handle your debt payments, the sooner you can seek help from a Licensed Insolvency Trustee and save your business.
Here’s how you know that your business has taken on more debt than it can reasonably pay off:
- Debt-to-equity ratio: Calculate your debt-to-equity ratio by dividing your total debt by your total equity (total debt / total equity = ratio). A 30 percent ratio (or 0.3) or lower is considered a healthy ratio, though it depends on your industry.
- Cash flow: More important than your debt-to-equity ratio is how much money your business is bringing in after your overhead and expenses related to sales. This is your “operating revenue,” or, your revenue after all expenses except interest and taxes. A ratio of 1.0 means you can cover the expenses of your interest, but a more comfortable ratio would be 1.2 to 1.5. If your operating income is less than your interest, you’re in trouble and it’s time to contact a Licensed Insolvency Trustee.
If interest payments are beyond your ability to pay, a Licensed Insolvency Trustee should be your first call. According to David Sklar & Associates, too many businesses wait until it’s too late and bankruptcy becomes their only option. An alternative to bankruptcy is a Division 1 Proposal, similar to a consumer proposal in Canada except tailored to businesses with high levels of debt. It’s an agreement with all of your unsecured creditors to renegotiate your debts.
Here’s what a Licensed Insolvency Trustee like David Sklar & Associates will do for your business if you’re facing a mounting debt crisis:
- Act as an intermediary between your company and your creditors
- Create a Division 1 Proposal, which, like a consumer proposal in Canada, can offer you relief and a new time frame to pay
- Negotiate concessions on your principal and interest with your creditors
The goal of a Licensed Insolvency Trustee like David Sklar & Associates is to keep your business operating and avoid bankruptcy. A firm that handles Toronto debt consolidation for businesses can rescue your business from the brink.
If your business is not incorporated and you are personally on the hook for your business debts, look into a consumer proposal in Canada instead. You can consolidate all your unsecured debts with a consumer proposal in Canada and give yourself breathing room to pay back your debt. Insolvency is not the end of your financial future; a consumer proposal in Canada can help you get back on your feet and back in business.