TYPES OF DEBT
Types of Debt
Running and managing a business can be stressful – especially when it comes to balancing the books. However, business debt is often required to launch a successful venture and cover start-up costs such as equipment, office space and transportation.
Despite these costs being paid with the best intention of future revenue repaying what’s owed, sometimes that just isn’t possible leaving business owners strapped for cash and worried about how they’re going to cover their bills – especially in the first few years of trading.
Sometimes as a business owner you can fall into financial difficulty through no fault of your own, making it more difficult to repay what you borrowed.
Common causes of business debt
Managing a business can be both thrilling and daunting in equal measure. There’s no escaping the rush of achievement, however, dealing with the day-to-day management of a business can be lonely as you face making all decisions on your own in your quest for success.
It is that attitude that can make business debt seem even more stressful and knowing where to turn to for help all the harder. When money worries become and issue and you find yourself struggling to keep your head above water to regain control, problems that were once relatively small can become serious in no time at all.
Common causes of business debt include: unpaid invoices affecting cash flow, cancelled orders reducing revenue, unexpected business costs and changes in market conditions which result in lower revenue.
Even if you find the business is turning a profit, unreliable cash flow can have a major impact on the business and could even threaten its existence. That’s why it’s important to always be aware of the common causes of business debt and what to do should you find yourself struggling to make it from one month to the next.
How to manage business debt
Just like when dealing with any type of debt, the most important thing to do when tackling business debt is to be honest about the situation. It can be all too easy to bury your head in the sand in the hope that all of your problems with vanish, but debt doesn’t take a day off – no matter how much you want it to.
Dealing with business debt doesn’t automatically mean that you face sequestration or bankruptcy. Even if your organisation is on the brink of closure there are simple steps you can take in a bid to prevent further action from being taken.
Know your numbers
It’s vital to be aware of your income, expenditure, profits and losses when dealing with business debt. Keeping a close eye on the bottom line is important, of course, but it is equally as important to understand what the figures leading to that number actually mean. By keeping a close eye on the figures you’ll be able to spot any potential issues in advance and if you can’t prevent them it at least offers the opportunity to prepare for whatever they are.
Look to the future
Having a close understanding of your finances will also allow you to make accurate cash flow forecasts. Expect the unexpected and you will be prepared so it’s important to keep an eye on your forecasts to ensure that you can prepare for any potential issues – allowing you to access support or advice in advance – and regain control.
If you find yourself falling behind in payments, or better yet are aware in advance that you will be unable to make a payment, it’s vital to speak up. Never be afraid to keep the people you owe money to in the loop. This will offer the opportunity to discuss spreading your repayments and potentially stopping more serious legal action in the long run.
Sell non-essential assets
One of the easiest ways to repay business debt you owe is to sell non-essential company assets. These are the added luxuries that are nice to have in the business but don’t play a key role in the day-to-day running of the organisation.
Again, this is quite simply about cutting non-essential payments in order to repay debts you owe. This could be something as simple as opting for a different energy supplier with a better tariff to save cash or downsizing or relocating office on the bigger end of the scale. It might seem daunting but this can be a quick and easy way to reduce costs and repay what you owe.
It’s important to note, if you struggle to manage your business debt and become insolvent, it is illegal to continue trading and your business may end up in sequestration. It is imperative that you take action as soon as you have concerns about company finances.