What bills to pay when there isn’t enough money to go around?

It is a very common question and more often than not answered incorrectly.
First there must be some context to set the stage for the strategy.
The rule is pay what is required to survive another day, to fight another battle.

The landlord? No, definitely not. Do not pay this bill. You can easily get 90 days without payment and then if cash flow has not improved you are perfectly poised for negotiating forgiveness and a reduced rent payment going forward. Landlords are in no position to be firm, there are no renters standing in line.

Of course do not pay debt service under any circumstances; it is a huge loss of capital with no positive results. Additionally, this sets the stage for a debt forgiveness workout.

Credit cards can be worked out but only if in default for over 90 days or more. Do not pay them in times of reduced revenue. Unsecured creditors, vendors, unless required for operations like the phone bill, utilities in general, and other such requirements, do not pay unsecured creditors. There is always a substitute supplier for any item you may need.

Payroll and payroll taxes should be paid without fail. Reduce payroll by reducing your workforce.
Advertising is usually the first to go, but reduce carefully. Make certain you do not tank your sales by eliminating important revenue-creating advertisements. Definitely eliminate nonproductive advertising that can be measured by results.

Do not pay equipment leases. It will take many months before there is even a threat of repossession and the debt can be worked out, negotiated down.
Car and truck payments will take months to repossess, so do no pay. But be prepared to catch up in 90 to 120 days.

Insurance? Pay if you can, it’s a bad bet  to default.

UPS? Do not pay; can always use Fed Express.
Here is the point: When cash is inadequate to support all your overhead, pay ONLY income producing requirements and survival needs. These are your marching orders.

Follow this and you may survive to turn your business around or work out your debt.

Source by Don Todrin

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