Financial Strategy

7 steps to managing business debt

In business, debt doesn’t have the same negative connotations as in our personal lives, in fact, many successful businesses choose to leverage investors’ or banks’ money over their own to maximise cash available for shareholders or to finance growth and innovation.

When interest rates are lower than inflation, this is also a sensible hedging strategy. But if debt in your business has started to keep you awake at night, here are 7 quick strategies that your Financial Director can support you with, without compromising on the quality of your product or service.

1. Understand the position

Get your ostrich head out of the sand and get real. How bad is it? Good quality financial data is the key and should be updated every working day. Nowadays, most bookkeeping systems can provide you with almost live data on which you can assess your position and make quick decisions.

2. Prioritise

Which of your financial commitments is costing the most, in terms of fees and interest? Which would have the most impact if you failed to pay? Think about the effect on your credit score. Which finance providers are most flexible?

3. Negotiate

If you have had good working relationships with your finance providers and your suppliers, you may be surprised at how accommodating they can be, in order to protect future orders. Remember to be realistic and respectful, they are in business too and may be experiencing similar pressures.

4. Cut costs

Review your budget and reconsider any non-critical expenses. Improving your margins through efficiencies is a great long-term strategy but is unlikely to fix the current issues, however you may have been feeling a lot more adventurous when setting your budget, or perhaps some commitments such as investing in a new machine could be deferred for a short while.

5. Increase sales

It may be counterintuitive to discount during times of hardship, but if a strong margin can still be achieved, increasing sales volume will of course lead to improved cashflow.

6. Collect cash

How long are your customers taking to pay you? Could you employ a debt collector for a purge? Or perhaps just more regular and consistent sales ledger management is all that is needed? In some industries, it is common to reward quick payment with a settlement discount.

7. Refinancing

Swapping secured facilities for more structured, longer-term or secured debt could remove the urgency, save interest and allow you to budget with the knowledge of how much the debt is costing you. For example, asset finance, or sale/lease back of assets can be fairly quick to obtain. Your Financial Director will have relationships with brokers and access to online options.

There are many advantages of managing financing, including releasing cash and improving your credit score, or simply your relationships with sleep! Above all else, keep the dialogue with your peers open and be flexible with your plans.


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