How to manage your business debt

For many businesses, falling into debt is unavoidable.

Business loans are a common and accessible form of funding but with interest rates set to remain at 5.25 per cent, repayments have become more difficult.

You must take steps to manage your debts early before they become a bigger issue for your business.

Prioritise your debts

The first step to managing your business debts is to put your debts in order of priority.

Your priority will depend on the severity and extent of your debts, but we recommend that you prioritise:

·        Business rates

·        Utility bills

·        Mortgage or rental payments

·        Tax bills

·        Payments to important suppliers

·        Bank loans

·        Any borrowing with a personal guarantee.

By ordering your debts as the first point of call, you have started a strategy for how to deal with your debts.

Communicate with your creditors

You must keep open communication with the people you owe money to.

This allows you to explain your situation and potentially negotiate more favourable terms, such as a new payment plan with extended time to repay or more affordable repayments.

They may also be able to provide you with advice on repayments.

Involve the team

If your business operates with multiple directors or higher management, it is beneficial to get them involved in your finances.

Not only does this allow you to pull together, but other team members can bring knowledge and expertise that you might not necessarily have to the table. This will allow you to identify potential strategies you may not have considered.

Improve your cashflow

Improving your cash flow will allow you to have a better chance of repaying your debts.

To do this, you should:

·        Cut unnecessary costs and expenses

·        Ensure your clients and customers pay on time

·        Carry less stock to fit your demand

By doing this, you can potentially free up some money that you can use to directly pay off your debts.

Raising funds

There are ways you can raise money to help with your debts.

Of course, finding investment when you are in debt will be tough, as investors are unlikely to support a business that is in financial difficulty.

If it is only a rough patch, you may be able to source a cornerstone investor. However, they will likely request a substantial equity stake in your business, which could impact your finances and business decisions further down the line.

There are alternatives to traditional investment that you should consider:

·        Borrowing from family and friends – but make sure you have written agreements in place for repayments

·        Liquidate your assets

·        Crowdfunding

Whilst these can all work to raise money, it is best to talk to an expert about the options available to you.

Get expert advice

If you are struggling with your business finances, it may seem counterintuitive to spend money on an accountant. However, working with an accountant can help you to find solutions to your debts and improve your cash flow.

An accountant can help you prioritise your debts, improve your cash flow, and identify areas where you may be able to cut costs.

They can also help you restructure your business plan to make minimizing your debts and increasing your profits a top priority.

Please get in touch with the team at Iceberg Accounting for further help and advice.