Managing debt while starting and running your own business can be a challenge. As the owner, you are not only responsible for steering the ship but also keeping the finances afloat. Effective debt management is a core component of running a successful business – especially if you have several outstanding loans.
In this article, you will learn how to manage debt while starting and running your own business.
Key Takeaways
- The most common types of business debt involve business loans, credit card loans, and unpaid invoices.
- Some of the most effective strategies to combat business debt involve consolidating your debt, negotiating with creditors, and seeking professional advice.
- Debt consolidation enables you to combine multiple debts into one, streamlining your debt repayment plan into monthly instalments.
What Are the Most Common Types of Business Debt?
According to CreditorWatch, the number of Australian businesses entering external administration has hit a record high, with an increase of 22 per cent compared to last year. The Australian Tax Office (ATO) is also collecting tens of billions of debts owed by small businesses, increasing the risk of further insolvencies.
There are many reasons why businesses fall into debt, and the management strategies to reduce debt depend on the circumstances. Before we dive into debt management strategies, let’s cover the types of debt you will likely encounter.
Business Loans
These are loans that you take out through a credit provider, such as a bank or a financial lender. You use these loans to fund different aspects of your business, such as buying new equipment or investing in marketing and advertising.
Unpaid Invoices
Unpaid invoices are debts that your customers owe to your business. Too many late or unpaid invoices can negatively impact your cash flow, making it harder for your business to pay the bills. The result can lead to increasing debt on your end.
Credit Cards
Many businesses use credit cards to pay for everyday essentials. This can be anything from tea and coffee for the staff room to office supplies and software subscription services. Credit cards typically have a higher interest rate than business loans, making them a high priority for any debt management strategy.
Debt Management Tips for Small Business Owners
Now that you understand the different types of business debt, let us explore your debt relief options. These tips are best suited for business owners struggling to repay multiple debts. If this is the case for you, then a debt consolidation plan may help. We will cover this in more detail soon.
Create a Budget
Creating a budget is an effective way to control your finances. This means evaluating your income and expenses as well as your debt obligations.
You can use an online budget calculator to see where you currently stand with your business expenses. Also categorize your debts based on their type and urgency, with the highest-interest debts being the main priority.
If you are applying for a business loan, you can use a borrowing power calculator to see what you can afford in debt repayment instalments.
Negotiate With Creditors
At first, the idea of negotiating with creditors may seem daunting. However, most creditors are open to a fair agreement with debtors willing to repay.
The key to a successful negotiation is to know what you can afford to repay. You must also be willing to establish mutually beneficial terms. By having an open and honest discussion with your creditors, they are more likely to be receptive to a new debt repayment plan.
If you are unwilling or unable to negotiate with creditors, talk to the experts at Debt Fix. Our team is highly skilled at negotiating with creditors to help debtors like you save money and get back in control of your finances.
Consolidate Your Debts
Are you struggling to repay multiple business debts at once? If so, then consider debt consolidation.
Debt consolidation is the process of combining multiple debts into one. The most common way to do this is to take out a new loan, use the funds to pay off your creditors, and then pay back the new loan in monthly instalments. This is easier and more efficient than trying to repay multiple debts at once, as each creditor has different owed amounts, due dates, and bank accounts.
With a debt consolidation plan, you repay the same amount at the same time each month and to only one creditor. Switching to a new loan might also reduce the amount of interest and fees you owe.
Seek Professional Advice
Managing business debt can be a stressful and isolating experience. Therefore, it’s important to reach out to people who can help you. The good news? There are many services you can turn to for advice, such as Debt Fix.
If you are over 15k in debt and struggling, we can help. Our friendly and knowledgeable team can provide you with a free debt assessment online or over the phone. We take the time to evaluate your circumstances and propose a debt relief solution that works for you. From there, we guide you each step of the way toward a debt-free future.
Contact us today for an obligation-free debt assessment. Your inquiry is 100 per cent confidential and will not affect your credit rating.
Frequently Asked Questions (FAQ)
Here are answers to common questions about managing business debt.
What is the Best Way to Prioritise Business Debt?
In most cases, you should focus on repaying your highest-interest debts first. The longer you leave these debts around, the more time they have to accrue interest and cost you money. Paying them off first can help reduce the total amount of owed interest and fees.
Should I Avoid Taking on New Debts?
If you need to borrow more money, ensure you can repay it. You must consider this if you apply for debt consolidation, as doing so involves taking out a new loan and using the loan funds to pay off your existing debts before initiating a new debt repayment plan.
When Should I Seek Advice for Debt Management?
If you have multiple debts and are feeling worried, then seek professional advice. A debt consultant can assess your situation and propose various debt relief options. They can then set you up with a plan that works for your business.
