You must have read many articles related to business. Did you ever come across the term “entrepreneurship”? Well, entrepreneurship can be referred to any activity of establishing or starting a business. Normally the purpose of doing any business is to earn a profit. Here, we need to differentiate between both the terms- “Entrepreneurship and Business.”Entrepreneurship is establishing a business, and a business is an activity where products or services are exchanged in terms of money. However nowadays both the terms are used interchanged.
Whatever the situation may be, the main motive behind is to earn a profit. Entrepreneurship does not end after establishing the business. You can earn profits only when the business runs properly. Running a business is not so easy. Not everyone can succeed in running a business.
Business deals and operations
Business deals with a lot of operations which has to be dealt with along with sales and marketing activity. The operations are done in various departments such as production, procurement, administrative, logistics, human resource, accounts, legal, etc. Even though sales and marketing of products and services lead to profits, even other departments are essential. Only when other departments work coordinating with each other, sales of products and services takes place. And only when sales take place and you earn a profit and, you can manage the expenses incurred by other departments. So in short, all the operations are essential and cannot be bifurcated on the basis of importance.
Handling debt in case of sister concerns
So handling of debts or loans from creditors is an important aspect which has to be dealt very carefully. Now let us discuss how to handle debt in case of sister concerns?
The concept of sister concerns comes into picture when you as an entrepreneur have established more than one business. In other words, an entrepreneur can establish more than one business under the same management. So a sister company can have a separate name and nature of business may be different. But the control of business will be under the parent company.
Even though the controls of the sister concern are under the parent company, the sister concern is independent, and all accounts have to be maintained separately. The same reflects even in case of debts either taken or given. Whenever the sister concern takes any loan or gives a loan, it is wholly responsible for paying or collecting the loan amount. However, since it is in the same group, it can give loans to companies in that particular group or to the parent company.
For instance, Let us consider X as the parent company and me, II and III as sister concerns running under the control of the parent company. Due to some financial crisis, Sister Concern I has taken a Loan from Sister concern III. No matter to whom the debt is given or taken from, a debt is a debt and has to be paid or received back. So, sister concern I become debtor and Sister Concern III becomes a creditor. Like all other creditors, the amount has to be repaid to Sister Concern III.
In the situation of non-payment
One point to be considered is that like other creditors sister concern III won’t sue sister concern I in case of non-payment of debt, because same person or management manage everything. Giving and taking of loan amount in case of various sister concerns and parent concern-sister concerns is quite common. There won’t be any legal obligation here.
How to handle your debt?
Like a good entrepreneur or businessman, you should know how to handle your debt. Management of debt is vital at all stage of business life. The concept of managing debt only in cases of crisis is wrong. If the debt is managed correctly, then you won’t land up in increasing your debt which will further become an unbearable burden and may lead to unavoidable circumstances like the closing of the business. So why take a risk when you have every opportunity to manage your debts tactfully. Some of the following are the tips which may be of help to you.
- List your debts: Debts are of two types – one that you have taken a loan and the other in which you have given a loan to others. So, making a list related to both the cases will be helpful in judging the situation. This exercise must be done regularly.
- Make a timetable: Always ensure that the debts are paid within time. Small debts like operating expenses such as your phone bills, electricity bills, your office maintenance bills, etc. need to be regularly settled. If you fail to do, your phone or electricity line may get disconnected, and it may lead to problem running the office either it is production or other administrative works. The operating expenses include sales also. Clearance of this expense is a must. Else you workforce won’t support you. In case you are unable to clear the full debts, at least plan to clear the debts partly. This may postpone the problem to some extent. However, postponing for long may also increase the problem.
- Prioritize your payments: After making the timetable, you must prioritize your payments. When you do this, the big debts can be cleared easily. If not full amount at least some part of it can be cleared. Regular recurring expenses need priority.
- Emergency Fund: Always ensure that you are creating an emergency fund to avoid unavoidable circumstances because business is a risky job. You never know what will happen the next moment.
- Concentrate on collections: Not only clearing debts, but you should concentrate on collections part also. In fact, this aspect has to be dealt with on priority. Make an outstanding statement which tells about the amount that is due from your debtors. Regular and prompt collections from debtors will solve some of the problems as it helps to maintain the regular operating expenses.
- Cut down unnecessary expenses: Well nothing in unimportant in case of a business. To build up reputation and goodwill, you may have to spend on keeping your customers happy. But small advice is that never entertain your customers so much that it is drowning you in debts. Avoid unnecessary expenses wherever possible.
If your business is in debt and you are worried about how to handle the same, the tips I have shared above will help you out. You can effectively use them to overcome your present position and become financially stable once again. At the same time, it is also described how you can handle the debt crisis in case of sister concern. So, whatever the situation is, the tips shared above will help you to regain your position in the business world once again.