Preparing for growth, making financial assessments, and managing business debt rank at the top of importance in running a business. Starting your business often requires taking on debt to pay off operating costs and launch products. It is a risk and there are no guarantees that a business will be able to pay off its debt which leads to many people asking “Is business debt good or bad?”. The answer is highly dependent on individual circumstances and the context of your situation.
While we believe the following suggestions about managing business debt to be valid and helpful, they are general tips and every business’s situation is unique. As professional business advisors, Taggart & Partners are capable of helping you understand all your financial options and guiding you towards quick improvement regardless of your current situation.
Acknowledge your situation to improve it
If you find yourself taking on more debt, it is best to make a plan and implement it instead of hoping for a good outcome. Successfully managing business debt relies on you being able to make payments to your staff and vendors, pay your taxes, and cover your rent or mortgage. Failure to do so can result in costly court cases and even government interference which can lead to asset seizures and bankruptcy.
Keep abreast of your current financial situation and use highly regarded accounting software to help you track debts and other costs. Having access to this information can help you prioritise which payments need to be made first. You may wish to think about business financing to help increase your cash flow. When discussing the question of is business debt good or bad, this is an example of good debt as financing can fix short term financial problems and be paid off over a long period of time. Consult with a professional firm such as Taggart & Partners to best understand all your options.
Prioritise
If you are having trouble managing business debt it is good to prioritise your expenses. The following are a few important areas to consider.
- Bills– Rent and utilities need to be paid to maintain your business and not paying them may hurt your credit ranking
- Wages– Your employees should be paid promptly or there will be no one to operate your business. Consider the possibility of renegotiating contracts or other short-term solutions.
- Vendors and Partners– You will need goods to keep your operations running smoothly. Incurring debt can also lead to a lack of trust and erode the relationships you have built.
- Credit– Make payments on existing loans, credit cards, or other creditors. Not paying can have a significant impact on your credit score.
Negotiate with the people you owe money to
This is potentially the hardest area of managing business debt as discussing money can be awkward or even embarrassing. However, having a frank talk early in the process can alleviate late penalties and haranguing from debt collectors. Your conversation should fully explain your situation and a record of it should be kept. Ask for extensions or payment plans and inquire about options such as a hardship provision.
Debt Collectors
If your debt has been sent on to a debt collector be aware that their conduct is governed by law. Talk with a business advisor to find out your rights and responsibilities when dealing with debt collectors.
Cash Flow
Ill managed cash flow can lead to a host of problems and create hardship when it comes to fulfilling your obligations. Make sure your invoices are being paid in a timely fashion and consider all options that allow you to collect money faster. Review your accounts to make sure there are no overdue statements and take immediate action with those clients who are late. Analyse your expenses for things that can be cut to bring in more cash.
Increase Sales
This may seem an obvious step in managing business debt but it is a process that is often overlooked. Review what products or services are bringing in money and focus on expanding them. Ensure that your pricing is adequate and cut areas that are failing to be profitable. Look into selling assets that are not needed to pay off your debt and make your business more effective.
Seek New Investors
This option can increase the amount of funds at your disposal but it may cost you some of the control in your business. This option needs to be carefully considered and is heavily dependent on your circumstances.
Cut Costs
Examine where and how you can cut costs but do so selectively while keeping your business goals in mind. Slashing staff from your payroll may help in the short term but after your recovery, you will need them to operate your business and rehiring may be more expensive. Look into the physical space you use and see if saving money on rent is an option. Talk with your vendors to see if you can get discounted orders, not asking results in never knowing so take the chance to look for savings.
Consolidate Business Debt
Refinancing, also known as business debt consolidation, merges numerous high-cost debts into one cost-effective debt that can be paid off over a long time period. Managing a single payment is generally much easier than several payments and cuts down on costs. However, the cost of interest is higher due to the length of the loan.
Explore all your options
Realising the total number of choices you have in dealing with business debt can be overwhelming and stressful which makes connecting with professional business advisors essential. Contact Taggart & Partners with enquiries concerning managing business debt, by calling (07) 3391 1188 or, emailing enquiries@taggartandpartners.com.au or by getting in touch online.