Strategies to Manage Business Debt

As a business owner, you have plenty to manage (marketing campaigns, business goals, vendors, employees). And that’s far from the actual comprehensive list. Add debt to the mix, and you are overwhelmed by how many things you have to handle. Debt is often necessary to get a company off the ground, but it brings stress and pressure. In time, it stands in the way of reaching your objectives and can become an unsustainable expense.

Managing debt proactively is essential to perpetual survival if your company is viable. This article looks at several strategies you can employ to manage business debt.

Organise and categorise debts

The first step in managing business debt is to manage all expenses. Use a spreadsheet to list all debts and how much they cost. It’s crucial to be specific to determine the extent of every debt. Don’t wait to receive a warrant of control document to manage your debts.

What is a warrant of control? It’s a legal document that allows bailiffs to visit your business address and take control of your assets because you failed to pay your debt. It’s wise to find a way to pay the business debt before the enforcement agents seize your goods and sell them at auction.

List each debt and include details about it:

– Due date
– Total remaining balance
– Creditor
– Interest rate
– Purpose of debt
– Method of payment
– Type of credit

The data gathered in a single place helps you understand how much you own and to whom and enables you to create a game plan to move forward. This examination could remind you of the expenses that triggered the debt and give you the chance to reconsider if they are important as your company moves further. The information should influence your attack plan because every kind of debt requires a unique handling method.

Identify what factors triggered your debt

It’s crucial to identify the source of your debt issue. Be objective and look with a critical eye to see if you’re heading to a point where you need extra debt or past expenses triggered the present debt. Knowing the cause of business debt can help you figure out how to solve your financial problems.

Increase business income and cut down spending

Even if a business debt is different from personal debt, you can use the same strategies to manage it to a certain extent. The major parts of the debt equation are the company’s income and spending. If you reduce spending, you save some extra funds to pay debt and avoid further indebtedness. Increasing the revenue can provide you with additional funds for paying the debt. Gaining revenue shows that your business is growing and can prevent dealing with a warrant of control.

Here are a couple of methods to reduce spending and boost revenue.

– Change prices. Depending on your public and business model, you can increase sales and revenue by raising or dropping the prices. The more you sell, the higher your income is.

– Cut out the fluff. You can cut down some of the expenses that prevent you from accomplishing your mission. Teambuilding activities, fresh juice and fruits for the office, extra office space, or special meals can add extra value to your company, but they cost money. If you find it difficult to pay debts, make a list of non-essential expenses and cut them out. Let your employees know that you’ll reintroduce them as soon as the company is back on track.

– Follow the market demand. What is the star product of your brand? How can you make some extra cash? Your customer base probably prefers some products or services more than others. Maybe it’s a classic service or a custom-made product. Research and calculate how much it would cost your company to produce more of the in-demand product.

– Renegotiate contracts and prices with partners. When you renegotiate contracts, you must be careful not to jeopardise relationships. However, it’s essential to ensure you don’t overpay for supplies or services.

Keep an eye on the business inventory

Treat your inventory as you do your personal refrigerator. You know some items linger in the back, and you won’t ever use them. Check the inventory to identify the products that don’t sell and liquidate them because they affect your bottom line.

Your inventory is where a significant portion of your money is tied up. Ask one of your employees to look at the inventory regularly and make sure no items sit in the storage room unnoticed. Even if you sell them at a lower price than initially evaluated, it’s best to liquidate them rather than keep resources tied up. Sell them during the Black Friday period or a special event. You probably even pay interest on the stale inventory you forgot about.

Debt restructure

When the above strategies don’t work or you fail to make sufficient funds to recapitalise your company, a debt restructure can prove helpful. Most lenders consider restructuring when their clients are distressed and face a high risk of entering an insolvency process.

If you engage in a debt restructuring process, you negotiate your debts and implement new measures. The lender can provide you with a temporary covenant waiver, repayment holiday, or standstill agreement. All these processes have the purpose of providing your company with time to get back on track.

Sometimes a debt restructuring involves a rescheduling or covenant reset of the existing debt. In case your company is significantly over-geared, your lender may also offer debt forgiveness or conversion.

If none of the above recommendations can help your business manage debt, consider working with a professional. They specialise in creating business debt strategies that prevent companies from going bankrupt.

You already have a lot on your plate as a business owner. Managing debt can make running your business extra challenging, so put some of the above strategies into action. It’s the moment to gain some peace of mind and start achieving your business goals.