Piggy Bank

If you’re a small business owner and you’re worried about your debt, you can take some consolation in the fact you are not alone. One-in-four small and medium-sized businesses in the UK suffered from bad debt over the past 12 months, according to Bibby Financial Services’ (BFS) latest SME (small and medium-sized enterprises) Confidence Tracker - that’s as many as 1.3 million firms who could be affected by insolvency or struggling to pay their customers.

Handling debt is a challenge for all businesses - big, small or somewhere in between. To that end, I’ve put together five tips for ways your business can dig itself out of debt:

  1. Cut costs
Sounds obvious, but there’s likely to be plenty of unnecessary costs coming out of your business that you could get rid of. Start to identify areas where you can reduce costs. These could be big in scale:
  • Unused business space you’re paying rent on.
  • An annual company holiday.
  • Expensive unused equipment.
And much smaller:
  • A weekly fruit-and-veg delivery.
  • Outsourced accountancy services.
  • Company smartphones.
Do a stocktake of every outgoing cost your business has. Anything that’s not essential, strike it out. That’s not to say you couldn’t bring the fruit delivery or company holiday back at some point - just be realistic about your current financial situation.

Speak to your suppliers too. Would they be happy to agree to some discounts and deferred payments?

  1. Keep a keen eye on your cashflow
Healthy management of cashflow - the money that’s moving in and out of your business - is one of the best ways you can keep your financial position as buoyant as possible.

You can keep cashflow healthy by:

  • Invoicing for payment early.
  • Chasing for payment with regular reminders.
However, if you’re still not getting your invoices paid on time, you can take more serious action, including:
  • Start legal proceedings.
  • Employ a debt collection agency.
  • Speak to your solicitor.
Cashflow is a key indicator of your company’s financial health, so put it right at the top of your financial priority list.
  1. Find out what support is available to you
Our economy may still be somewhat fragile, and we still don’t know what the ramifications of Brexit will be for businesses, so do take time to research what kinds of support - financial and otherwise - are available to you.

The government runs a number of support schemes for businesses, including:

  • Grants
  • Finance and loans.
  • Business support in the form of mentoring and consultancy.
  • Funding for small and medium-sized businesses and start-ups.
  1. See if you can lower your business credit card rate
If, like many small business owners, you took out a business credit card, you will no doubt be paying interest on it. That interest rate could be quite high. And if you aren’t making your repayments, your interest charges will start to build up.

While business credit cards offer many benefits, including interest-free purchases and travel insurance for business trips - struggling to make the payments could leave you with mounting debt.

One way to improve this situation is to speak to your bank, explain your situation and see if they will reduce your interest rate or give you a short repayment holiday. If they’re a pro-business bank and you’re a longstanding customer with a good credit score, they should at least listen to your case.

  1. Consolidate your loans & consider IVA or trust deed
If you have a number of different business loans, each with different interest rates, consider switching them all into 1 single low-interest loan.

This will not only streamline things for you and make it much easier to manage your loans, it’ll also help bring your debt down.

If you have heavy unsecured personal guaranteed debt, other options include an IVA in England or a protected trust deed in Scotland.

As you’ll know, running a business isn’t easy. And, for many small companies, debt and financial problems are a normal part of a company’s development, especially in the startup phase. But if you do find your debt running away from you, consider some of the above tips - they might put you back on the right path.

By Clare Greechan, Trust Deed Scotland