Bizdaq Blog

A small business guide to managing debt

For small business owners, liquidity is always an issue, especially if you’re carrying a growing burden of debt or if a customer has defaulted on a payment, causing cashflow problems and potentially threatening the very survival of your company.

Obviously, not all debt is bad. You might decide to take on extra debt in order to facilitate the growth of your operation, to finance essential new equipment or to move into much-needed premises. It’s only when your debt levels become unmanageable that problems arise.

If you do get into trouble, it’s important to tackle issues as soon as they arise – burying your head in the sand and hoping the storm will blow over isn’t an option. It doesn’t help to panic, either, but if you can keep a clear head, explore your options and make a sensible plan, you could dig yourself out of trouble and get back on an even keel.

Cut costs quickly

Look closely at the reasons your debt is getting out of hand and see if you can nip problems in the bud. The quickest and easiest remedy is to look for ways to make savings, lowering your outgoings to allow you to pay down your debt more quickly. Perhaps you can reduce the amount of space you lease, or maybe even sublet unused space to another business if the terms of your lease allow. Consider cutting workforce numbers and trim the fat from any discretionary spend. Is there any unused equipment you could sell?

Prioritise payments

You should always tackle the debt with the highest rates of interest first, as it’ll save you money in the long run. You’ll also need to protect your own interests by honouring any debts you’re personally liable for, if you don’t want to risk losing your assets. If you don’t meet your payroll or supplier commitments, you’ll lose goodwill at best and, at worst, the things that are essential to continuing to run your business. Revisit your budget and try to ensure that your business revenues at least cover your fixed monthly costs.

Bring more money in

It sounds simplistic but one of the best ways of diminishing your debt is by boosting revenue in the short term. Consider offering customers special discounts for buying in bigger quantities or ask them if there’s anything you can do to better meet their needs – or even if you can quote on something they usually buy elsewhere. Maybe think about offering clients or business partners a finder’s fee if they introduce you to new customers.

Renegotiate terms

You may be able to negotiate more favourable terms with your suppliers and your loan provider. Talk to your creditors and explain your recovery plan. It may make them nervous but it’s in their interest to try to accommodate your request rather than see your business fail and their own money disappear.

Whatever you do, don’t go it alone. Try to keep your business running and consult with a debt advisor to see what help is available. Check out the free advice at Business Debtline and read what the Inland Revenue has to say about late tax payments at the government’s website.