Business debt is a terrifying reality to face. If you do not take effective debt management steps immediately, your business debt will begin to spiral out of control and possibly lead to your business closing down. Do not allow debt to cripple the years of time, effort, and sacrifice that have gone into building your small business with our 9 tips for managing your business debt. SureBooks is a small business accountant that will offer you seasoned advice on how to best get your business back to success with our payroll and accounting services.
9 Tips For Managing Business Debt:
South African small businesses have faced unprecedented difficulties during the COVID-19 Pandemic. From lockdowns to restrictions to increased importing tariffs, many small businesses are facing debt due to trying to maintain operations in this difficult financial climate. With all of these financial challenges placed on top of the difficulty for small businesses to survive past the five-year mark, it is understandable that many small businesses are facing debt.
While debt is being commonly experienced across South African small businesses, that does not reduce the pressure, anxiety, and fear for small business owners who are attempting to stay on top of their finances. We are here to alleviate some of your business debt stress with our effective 9 debt management tips.
1) Understand Your Debt:
Businesses can accumulate debt in various ways, from overdue payments to suppliers to late salaries to missed tax payments. While it is easy to understand that your business is in debt, many small business owners do not have a clear grasp of the exact figures. Many small business owners also avoid figuring out their exact debt due to fear of it being higher than they had already anticipated.
The best way to start managing your debt is to have a clear understanding of exactly how much you owe and to whom. We recommend that you spend time sorting out your business finances and compiling an exact list of your owed amounts, who you owe them to, the time frame of your debt, and possible penalties you have accumulated due to missed payments. If you are uncertain during this process, your hired accounting services will be able to assist you.
2) Prioritise Creditors:
Your next best step in managing your business debt is to prioritise your creditors. It can quickly become overwhelming when you see how much you owe and to how many people, but prioritising your creditors makes debt easier to manage. No small business can be expected to pay off all their debt at once, therefore a list of prioritised creditors works as a plan that outlines when and how you plan to pay each creditor.
How you choose to priorities your creditors can be based on a variety of factors. You may want to focus on your smaller debts first to alleviate some pressure off the number of people your business owes money to. Alternatively, you may want to begin with your larger debts to start working away at decreasing these debt amounts. It is important to bear in mind any penalties or impact on operations when selecting which creditors to prioritise.
3) Create a Budget:
The importance of a business budget can never be stated enough, but a budget becomes especially important when managing your business debt. You need a strong and accurate budget that breaks your debt down into manageable amounts each month. With a budget, you can alleviate the stress of a lump debt amount by breaking it down into smaller, easier-to-handle amounts. Within your budget, you can allocate a small percentage to each creditor or focus on a specific creditor each month, which all depends on your list of prioritised creditors.
4) Reduce Unnecessary Spending:
This is a simple yet often overlooked way to immediately reduce your debt from increasing. When creating your new budget to manage your business debt, analyse your previous budget and your monthly spending. Ask yourself how your expenses are contributing to your business operations. If you can afford to cut costs in certain ways, such as moving your business to your home instead of paying rent at an office, then this is an easy way to reduce your monthly stress regarding your monthly business expenses and overall debt.
5) Use Business Emergency Fund:
Every small business should have an emergency fund built into its monthly budget to assist during times of financial stress. If there is ever a time to dip into your business’s emergency fund, your business facing severe consequences as a result of debt would be it. While we recommend avoiding depleting your entire emergency fund, you can use a substantial portion of it to pay prioritised creditors.
If you plan to use your emergency fund to manage your business debt, you need to work on replacing these funds into your new budget. The replacement of these funds can be spread out over a long-term plan to avoid placing additional financial stress on this pressurising time. As soon as your business is on top of its debt, make your emergency fund your top financial priority.
6) Approach Creditors With a Plan:
One way to add pressure and stress to your business debt is a collection of disgruntled creditors. By approaching each of your creditors with acknowledgement of your exact debt and an explanation for why the debt has occurred, your creditors should hopefully demonstrate an understanding of your situation and appreciation for you acknowledging your debt. This will then hopefully earn you some breathing space regarding any legal pressure they may be tempted to place on your business.
If you plan to approach your creditors, it is important to provide them with a clear payment plan. You can use your prioritised list and your strong business budget as a demonstration of your intent to pay your business debt, the expected time frame, and which funds you are going to be using to pay off your debt. A plan will demonstrate that you are taking your debt seriously and taking action to ensure your debt with each creditor is paid off.
7) Increase Earning:
One strategy to implement while you are managing your business debt is to also focus on how you can increase earning potential. More money flowing into your business will provide you with more money to work with whilst managing your debt. One way to increase business earnings is by gaining new customers, which can be achieved through the inexpensive options of social media marketing or partnering with like-minded businesses.
Managing your business debt and implementing new business or marketing strategies at the same time can be difficult, which is why accounting services would be recommended if you are going to pursue this debt management tip.
8) Stick To Debt Repayment Schedule:
You must stick to your schedule once you have provided your creditors with a repayment schedule for your business debt. We understand that this is often easier said than done, but sticking to your schedule will demonstrate that your business is trustworthy and will thus not have any implications on your business and creditor’s relationship in the future.
If you cannot afford to pay the full allocated amount in a month, pay at least a portion of the amount. Explain to your creditors why the amount is not in full and provide them with an altered payment plan to cover your missed expenses. This will prevent any penalties from occurring and increase your overall debt amount.
9) Consolidate Debt:
One method to cover your business debt is to consolidate your debt into one lump amount and then pay off your debt in single monthly payments. The payment of consolidated debt is often done through refinancing your debt using a small business loan.
This can be a beneficial way to cover your debt as you may be able to negotiate a lower interest rate for your new loan and better payment terms that suit the financial nature of your industry. You also only have one monthly payment to consider, rather than paying each creditor.
There are also downsides to consolidating your debt. It tends to extend your debt over a longer period, you ultimately pay more in interest, and using debt to pay off debt can be a difficult cycle to end. We would recommend acquiring professional assistance from your accounting services to determine whether this would assist your debt management or exacerbate the debt over a longer-term.
SureBooks Accounting Services:
SureBooks is a small business accountant that offers payroll and accounting services to small businesses across South Africa. We understand that debt management for businesses is difficult. We are here to assist reduce your stress over your business debt with our effective and trustworthy accounting services.
Our accounting services involve the use of the latest accounting software, Xero. The use of Xero enables us to manage your business books with efficiency and transparency. You can access your books on Xero at any point, which provides you with peace of mind and control over your business’s accounting services.
The use of the latest accounting software is then paired with our team of highly experienced and qualified small business accountants. This powerful combination enables us to provide you with expert accounting services. When it comes to debt management, you need to make the correct decisions based on expert advice. We will assist you with getting through your business debt by providing relevant and reliable advice on your up-to-date books.
SureBooks accounting services will be an exceptional partnership for your business. We strive to ensure that your business will be secured for tomorrow, which is why we will offer the best assistance to you during this stressful time of managing business debt. Allow us to handle the financial side of your business with our effective financial management in our accounting services, so that you can get back to what matters, running a successful small business.
The SureBooks team provides payroll and accounting services to numerous small businesses across various industries. We have accumulated a long list of satisfied clients who have benefited from our professional and experienced approach to our payroll and accounting services. We take away the pressure of staying on top of your business finances so that you can concentrate on the other important factors of managing a small business in South Africa.
If you are interested in pursuing a partnership with SureBooks, you can easily get in contact with us. One of our friendly SureBooks members will begin the process of equipping your business with the expertise and value that has become associated with SureBooks payroll and accounting services. If you are unable to contact us immediately, simply fill in our onboarding form and we will contact you when convenient. Get back to growing your bottom line with SureBooks payroll and accounting services.
SureBooks will assist your business get back on track with our payroll and accounting services.