BUSINESS DEVELOPMENT www.images-magazine.com 26 images APRIL 2022 How can I reduce the amount of debt my company is carrying? These days it’s easy to arrive at a point where growth is stagnant and profits fail to rise. There have been so many challenges to SMEs growing lately that it’s no wonder some are struggling. It’s sometimes disheartening in business to see things not go as well as you might have hoped. Market factors can often negatively impact what you feel is a watertight business plan, and failure to meet your challenges head-on means you can easily start to rack up debt. Often, businesses will simply focus on sales to get them out of debt, but this is frequently not enough, and if a business has gaping holes in its set-up or processes then it can mean sales are a help but not a solution to some key issues. Here are some ideas on how to remedy your situation, no matter the size of your business. Know the difference between good and bad debt This is where a lot of businesses simply fall down. Taking on unsecured credit (ie where a loan is given without collateral to support it) can spell disaster if cashflow becomes an issue. It’s better to take on longer, more secured debt (ie where an asset is put up to back the loan), if at all. Fix debts quickly Many companies use credit cards or other credit solutions to see them through lean times or to patch over quiet periods in their calendar. This is risky and could lead to worse problems. Concentrating on bad debt and shifting large amounts can mean that you end up in a much better position in terms of cashflow. If you are in this situation, concentrate on the cards with the highest interest rates to pay off first – don’t overstretch yourself, but know that this is one of the best ways to reduce your debt overall. Monitor your credit Making use of software that monitors scores and manages the credit with creditreporting companies is a great way to sort out debt. Some of these tools are thorough in score management as well as examining the scoregenerating metrics, which include credit available versus credit used. One major point to note is that business owners get higher personal ratings from reporting agencies when their target credit usage (credit used as a percentage of the credit available) is below 9%. Take up grants It may seem obvious, but taking on grants when they are available means that you can use them to service bad debts and smooth over some of your perceived good ones too. If help is out there, don’t be too hasty to dismiss it or feel that it is more suitable for new businesses. There is no shame in seeking help, and grants crop up more often than many people think. If they offer enough, they can also be used to improve your business. A piece of machinery, new business development staff or another way to bring your business into a new phase of success is always sensible. Negotiate your current debt The best time to reconsider your current debt is usually when there is an economic meltdown or at times of uncertainty. In such situations, lenders are more prone to consider a restructuring or renegotiation of interest rates and loan payments, using the Bank of England base rate as a guide. They will also be likely to be able to access programmes that support the present economic realities. Look at your outgoings for the basics Are you paying too much for some services? A review every so often of what you’re spending in terms of bills can make a huge difference to your bottom line. For example, with the current rising gas and electric prices, are you prepared for price hikes? Could you lock into a more valuable deal for your energy? There are always a host of ways companies can avoid or consolidate their debts, but constant reviews and keeping a keen eye on your outgoings compared with income is always the best way to avoid problems before they even present themselves. Expert advice on the business of running a garment decoration company Q&A Rick Smith is the managing director at Forbes Burton, a business consultancy with a specialism in insolvency. The firm offers free help and advice for distressed businesses which are struggling with financial problems, cashflow issues, and HMRC tax debt. www.forbesburton.com The best time to reconsider your current debt is when there is an economic meltdown or at times of uncertainty
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