Small Business Debt

Debt can be a necessary part of running a small business; whether setting up, or injecting money into the business to expand or upgrade. Regardless, controlling your debt, rather than letting it control you, is an important aspect of managing your business. Rather than spending unnecessary time and money servicing your debt, your resources can be much more effectively directed towards the actual running of your business.

Poor debt management can be a particular problem for small businesses when, combined with operating expenses, it bites into your revenue and cashflow, preventing or limiting your business operations, and causing undue stress and pressure. Being in control of your business’ debt frees you up to focus on actually running your business. Here are some tips on how to manage debt:

  • Be aware of your debt – know how much you owe, who you owe it to, and when payments are due.
  • Keeping the above in mind, prioritise your debt. Who needs to be paid regularly to ensure the optimal performance of your business? Obvious examples include payroll, rent and key suppliers.
  • Keep lines of communication open with your creditors. If things are a little tight, work with your creditors to come up with a payment plan. If the goods or services they provide are integral to the ongoing operation and success of your business , you don’t want them to cut off your supply. They also don’t want to lose you as a customer, so maintain a good relationship.
  • By maintaining a good relationship with our suppliers it’s easier to approach them to see if they can offer a better deal or price on their product. Ask for a discount on bulk orders, thereby decreasing what you owe and freeing up cash to pay off other debt.
  • Take a look at large debts such as bank loans, and explore ways to refinance, or negotiate new terms.
  • Look at ways to cut costs (without impacting negatively on your revenue stream) and ways to increase revenue. Offer special deals to key customers for prompt payment, thereby increasing your cashflow and your ability to service debt more quickly.
  • Use tools, such as Xero’s Bookkeeping software, to help identify your debts, keeping them visible and up-to-date.

Understanding your situation and taking steps, no matter how small, to control it, is your best strategy to minimise any risk to your business. Ignoring any problems doesn’t reduce them. Control and manage your debt, rather than letting it control you!