Extreme Solutions to Financial Problems

Individual settlement

You may choose among your creditors the ones you need to pay by arranging individual settlements. Many suppliers will consider foregoing all claims on overdue accounts if you agree to promptly pay a portion of their claims. Some of them may even continue conducting business with you.

It is difficult to predict which suppliers might be willing to consider an individual settlement and which will not. The only way to find out is to ask. Before proceeding, however, make absolutely sure that you want to pursue this course of action. It is possible that such action places a risk on the size and availability of your future credit lines. If you do proceed and the size of the debt to be forgiven is significant, get an agreement in writing before you meet the payment.

General settlement

A general settlement for all creditors is a much more serious step than pursuing individual settlements with selected creditors. General settlements are often made when companies are one step away from bankruptcy. They can sharply limit your ability to obtain future trade credit and debt financing.

However, seeking a general settlement for creditors is almost always a better solution than filing for bankruptcy. Be aware, though, that creditors don't always agree to general settlements.

Often, a settlement for creditors is arranged after a business has decided to close its doors. But it is sometimes pursued by businesses that plan to stay open although they frequently emerge as scaled-down enterprises.

If you are considering this option, consult with an experienced attorney.


Bankruptcy is an option of last resort. Even if you are completely out of money and have no intention of continuing with your business, it isn't necessarily the best course of action. Often, informal individual settlements or formal general settlements offer the best solution.

A voluntary bankruptcy, however, may allow you to pre-empt the legal actions of unsympathetic creditors. It may allow you to hold off payments to creditors while you come up with a new business plan. But it is important to consult with a lawyer before taking this option.

Sometimes creditors will try to force a business into an involuntary bankruptcy. They will pursue such action if they feel that the company will not make a rapid turnaround and that there will be little chance of realizing payment otherwise.

Any type of bankruptcy involves tremendous legal and accounting costs. And, before any creditors realize payment on their debts, the lawyers and accountants get paid first. A bankruptcy will also require a great deal of management effort and energy over an extended period of time. And, of course, it may scare away some of your vendors, customers, and employees.

Cutting costs

Come up with a bottom line goal and set a total companywide spending figure. Review each of your functional areas and determine where you can make cuts without doing long-term or irreputable harm to your product quality or sales efforts. Do this with the input and guidance of your key personnel.

Employee participation

Never try to hide serious financial trouble from your employees. Inform them of the problem. They are probably aware that it exists anyway. If you aren't honest, the rumors may fly, and people may assume a scenario worse than the reality.

Encourage your staff to make savings suggestions. It's a good idea to offer financial incentives for great suggestions if possible. Creating an awareness of the problem and offering each employee the opportunity to be part of the solution boosts morale and breeds loyalty even in the worst of times. If employees participate in suggesting cost-cutting measures, they are more likely to be cost conscious every day as well.


Everyone avoids layoffs. But it is better to lay off a few people at once rather than let everyone go because you are shutting your doors. Employee attitudes can be volatile during a downturn in business. You need to be very careful in your handling of employment issues during this period.

If you can avoid a layoff by freezing hiring and assigning idle workers to vacant positions in other job functions, do so. Or consider having everyone pitch in a little to cover an open position.

Avoid cutting salaries if possible. If you must make cuts, start with your own. Key executives should be next in line for pay cuts. Cut only the salaries of your rank-and-file employees as a last resort. But definitely cut pay before cutting benefits. Employees are generally more attached to their benefits than to the specific amount of their wages.

Another step you should consider before laying off staff is instituting a four-day work week. You may want to discuss this option with your employees and get their feedback first.

If you must proceed with a layoff, don't do it incrementally. Do it once, and then reassure the remaining staff that their jobs are secure. Be sure that the cuts you have made are sufficient enough to forestall a reoccurrence for some time to come.

By Source Streetwise Small Business Start-Up


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