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Case Study: How to Recover From a Large Business Debt

Have you ever wondered how your small business can bounce back from bad debt? Can you get your small business back on its feet after drowning in bad debts? 

In this article, we will discuss strategies and a case study from one of our clients who was drowning in bad debt. This will help guide you on the road to recovery from bad debt and help you come out stronger and successful.  

Robbie was our business coaching client. He owns an HVAC company and has had an outstanding reputation for service and technical expertise since 1965. 

However, he had incurred a bad debt of $174,000, which equals about 10% of his business’s annual sales. Because of this problem, Robbie considered the possibility of filing for bankruptcy or reorganizing the company.

During these tough times, Robbie:

  • ➡️ was losing hope
  • ➡️ his employees had low morale
  • ➡️ had a non-existent cash flow
  • ➡️ used inefficient business practices
  • ➡️ was exhausted from working long hours
  • ➡️ felt guilt for not spending time with his wife

Robbie knew that he had to take action and decide what strategy he needed to have to bounce back. 

Like many of our clients, Robbie booked a breakthrough call with Small Business Coach Associates, where we initially discussed the challenges he is currently facing and the personal and business goals he wanted to achieve. 

When Robbie engaged with us, we worked on a lot of things that helped him pay off his debts, and his business profits increased dramatically. 

We decided to work on the following:

  • 💡 Strategic Planning
  • 💡 Plan Deployment With His Team
  • 💡 Team Building System
  • 💡 Marketing Training
  • 💡 Products and Service Pricing System
  • 💡 Time Mastery System
  • 💡 Accountability

Strategic Planning

In this area, we helped Robbie develop his vision, values, mission, and goals, both personal and business. For Small Business Coach Associates(SBCA), this is a crucial part of a business because this is what gives hope to business owners and their employees.

As part of the strategic planning process, we conducted a SWOT analysis of his business. This helped us identify areas where he is best at and take advantage of the opportunities, while at the same time identifying potential challenges that he might face and the areas for improvement. 

We were able to develop an action plan that leverages Robbie’s strengths and addresses his weaknesses using the information that we gathered, allowing him to seize opportunities while minimizing risks.

Furthermore, we helped Robbie establish short-term and long-term goals for his business with a clear benchmark for measurement. It not only provides a sense of direction but also accountability. 

By setting achievable goals and regularly monitoring them, Robbie can stay on track toward his vision and mission and ensure the success of his business.

Once the plan was developed, we involved his employees in a plan deployment session. They were able to understand where the business was headed, help identify obstacles to problems, be involved in solving problems, and then join the owners in taking action to improve the business.

Team Building System

The bad debt issue affected not only Robbie’s business but also his employees. His employees had low morale, were unmotivated, and were also stressed. 

To enhance his team dynamics, we introduced a regular team-building system that will help foster communication and trust among employees. We made sure that his employees are engaged in the business by giving them roles that suit their strengths.

At the same time, we encouraged Robbie to have a feedback system where employees can share their concerns and ideas during their team meetings. This approach has been proven to not only empower employees, who feel that they can take part in business success, but also provide helpful insights and innovative ideas.

Marketing Training

We taught Robbie how to make his business more visible to his target clients using Google, social media, email, etc. We helped him study the market to understand his clients and be able to create highly effective marketing strategies. 

To achieve this, we conducted market research, analyzed consumer behavior, and identified potential customers. 

Another thing that we did was teach Robbie how to upsell their services. This strategy helped Robbie increase his revenue. We guided him on how to identify opportunities for upselling until we implement a service program for their existing clients during the slow season.

Products and Service Pricing System

The other strategy that helped Robbie increase his sales and revenues was setting up a pricing system. 

After evaluating client reviews and market research we implemented a price increase for the services he’s offering. However, we made sure that the packages were unique and fit his client’s needs and budgets. 

We also encouraged Robbie to implement surcharges, especially for clients who request emergency repairs or maintenance services during holidays or weekends. 

The surcharge helped Robbie offset the additional cost incurred by his team for working outside of business hours and also helped him increase his sales and revenues.

In addition, we implemented a preventative maintenance program that the company can offer to clients. 

This would provide additional revenue during slow periods in the business while performing preventative maintenance when it is less busy. It would benefit clients by identifying problems before equipment failures and offering them a discount on these services.

Time Mastery System

In our first meeting, Robbie mentioned that the number one thing that he wanted was a date with his wife.

I was working 80 hours per week and I told my business coach that the number one thing I wanted was a date with my wife.

We introduced Robbie to our Time Mastery System, which helped him organize his time and make the most out of it.

The Time Mastery System tracks tasks that energize him and delegates those that drain his energy. This system has helped not only Robbie but also all of our clients free up their time and focus more on the most important activities in their businesses. 


Accountability plays a crucial role in Robbie’s success in achieving his goals and paying off his debts. In every coaching session, we held Robbie accountable by setting clear goals and objectives plus regularly reviewing his progress on each goal. 

We asked questions like, “What do you want to get done this week?” 

Then, in our next coaching session, we review his progress toward the goals he set for that week. Doing this helped Robbie stay on track and motivated.

What Does It Mean for a Small Business to Be Buried in Bad Debt?

Before we dive into more strategies on how your business can bounce back from bad debt, let’s talk about what it means for a business to be buried in bad debt. This refers to a business that has piled up unpaid borrowed money, and it seems it can no longer recover.  

This situation hinders business growth, cash flow, operating effectively, and basic expenses such as payroll and rent. In this situation, small business owners tend to feel overwhelmed and stressed because they find it so hard to keep up in a highly competitive market.  

This situation is a two-way street: on one hand, a small business might be able to bounce back; on the other hand, you and your business could end up buried in even more debt.

Which street would you prefer to walk on?

How Does a Small Business Become Buried in Bad Debt?

Bad debt is a burden to small business owners. Not only does it slow or hinder the growth of their business, but it also negatively impacts their lives, making them more stressed and overwhelmed. 

There are many reasons why a small business might end up buried in bad debt. These can include high-interest loans, poor financial management, unplanned high expenses, pricing strategy issues, economic problems, late payments from customers, and a lack of planning.

I always emphasize to my clients the importance of regularly reviewing their financial statements.

This simple step is often overlooked by many business owners, but it can help you spot warning signs early and take actionable steps, such as adjusting your budget. Doing so will help ensure the financial health of your business.

How Can Business Owners Prevent Bad Debts?

Many businesses have struggled with bad debt problems, and I have frequently heard this from both leads and clients. 

But here’s the good news: this problem is solvable. It may require a lot of effort and proactive measures, but the outcomes are worth it.

Here are some strategies you should take note of or bookmark this article for future reference.

Credit Assessment Process

Thoroughly check your customers’ or clients’ payment behavior and credit history before offering them credit. By doing this, you will have an idea of how to flag customers or clients, and can make more informed decisions about whether to extend their credit or not. 

Clear Payment Terms

Even before launching your product or service, have clear payment terms and communicate them well to your customers or clients. 

This way, your customers or clients will know your policies about due dates, late fees, and the consequences of not paying the invoice. 

At the same time, this will prevent confusion and disputes regarding payments. 

Implement a Collection Process

You should have a systematic approach for following up on overdue payments. Start with a reminder and gradually become more formal if necessary. 

For example, with PayPal, you can automate reminders for unpaid invoices, making it easier to keep track of them.

Offer Multiple Payment Options

Make it easier for your customers or clients. 

Your customers or clients are always on the lookout for convenience and flexibility, so make sure to have various payment options, such as cards, online banking, and installments. 

Systematic Pricing Strategy

Many small business owners price their products or services too low. Pricing your product or service right is an important aspect of preventing and bouncing back from bad debt. It may sound tempting, but poor pricing can lead to cash flow problems and, at worst, bankruptcy. 

How Can a Business Bounce Back From Bad Debt?

Bouncing back from a bad debt is not an easy journey; it will take so much effort and time. You may feel that it is impossible to overcome this problem, but the truth is, it is not impossible to overcome it. 

All you need is a person who will help you and effective strategies. Here are some additional tips that may come in handy when you need them.

Prioritize Your Debts

Being systematic in paying your debt is essential. You can use debt payment strategies like the ‘snowball method’ (Dave Ramsey’s method), where you organize your debts from smallest to largest. You pay off the smallest debt first and then move to the next largest. You also add the payment from your first debt to the payment for your second debt.

For example, you have three debts:

  • A $1,000 credit card balance with 20% interest rate and a $100 payment
  • A $25,000 business loan with an 8% interest rate and a $1,000 payment
  • A $15,000 car loan with an 8% interest rate and a $500 payment

You will allocate as much money as possible to paying off the $1,000 debt (let’s say $200) while paying the minimum on the other debts.

Once the smallest debt has been paid off, you will focus on your business loan ($200 payment plus $1,000 payment = $1,200 payment to pay off the loan) and then on your car loan ($1,200 payment + $500 payment = $1,700 payment to pay off the car).

Your payments ‘snowball,’ and soon you will be debt-free! Then you can take the $1,700 a month and save or invest it.

Eliminate Unnecessary Expenses

Always track and remove unnecessary expenses such as subscriptions that you rarely use; avoid impulsive buying for personal or business use; and look for cheap but effective alternatives to market your business. At SBCA we call them Guerilla Marketing Strategies. 

Create a Budget

Having a budget will help you track your expenses and know if you still have funds to make payments on your debts. 

Avoid Getting More Debt

When you are paying your debt, it is important to avoid taking on more debt. Taking another loan sounds tempting, but it will only prolong your process of getting out of the said debt. 


Getting stuck with bad debts is not only a burden to your business but also very stressful and will affect your well-being and health. In order to bounce back from them, you need to be strategic, create a plan, and persevere.

I was beginning to lose hope in recovering from this large loss. We had many obstacles to overcome, low morale with our employees, non-existent cash flow, and inefficient business practices. I was working 80 hours per week and I told him that the number one thing I wanted was a date with my wife. My coach first worked with me one-on-one, then met with me and my managers, and finally with all of the employees. Our cash flow has started to improve and continues to improve daily. After six months our profits had increased over $152,000, which annualized is over $300,000 per year!

Robbie, President, Service Company

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Alan Melton
Alan Melton

Alan Melton founded Small Business Coach Associates, a platform he established in 2002 after selling a successful business to a publicly-held company.

His experience spans founding and growing several businesses, with his leadership skills being recognized when his business was listed as one of the Inc. 500’s fastest-growing companies.

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