Small businesses are hit hard by debt problems since cashflow can be tight and managing sales versus inventory or financing the build or assembly period for products may cause undue strain on an otherwise profitable business.
Like individuals, any small business can benefit from developing a debt management plan plan using experienced external advisors to help. Using outsiders has the advantage that they look at issues more clinically and with less emotion and, therefore, tend to make more direct and relevant suggestions on how to ease debt problems.
The Canadian government have also set aside funds to provide grants for small businesses to help with relieving debt. Whilst the criteria are strict it may be worthwhile getting specific advice to see if your business might qualify. Government grants can be the cheapest and most flexible form of financial support available so it is always worth asking.
Some form of fundamental review of the company’s borrowings may also yield areas where costs can be saved. For example, if your business has a number of loans then it may be a viable option to consider a debt consolidation loan. This is where you apply for a new loan and use the balance to pay off a number of existing facilities where the payments or interest rates are too high. A new debt consolidation loan may well have a lower interest rate and almost certainly a longer repayment period meaning that the monthly repayments can be reduced. Whilst this doesn’t eliminate debt problems it can provide a useful breathing space and a simplified debt structure for your business on more affordable terms.
Whilst sorting out the borrowing side of the business will yield benefits, the other part of an effective debt management plan is to make sure that you receive payments for your invoices on the due date. Do not become your customer’s bankers – develop an effective credit control function for your business or consider factoring your debts to generate cashflow for the business.
Debt problems rarely go away for small businesses since the margins can be tight. Borrowing to expand the business means that you can always be stretched and even a minor downturn in the market can lead to payment problems. Take advantage of any good times to rationalize any borrowings through a debt consolidation loan approach and seek out funding when rates are low and your trading performance is good or improving. That way any dialogue on debt management plans should be short and less frequent!
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Great list here. Small businesses are hit hard by debt problems but they can benefit as much as individuals from developing a debt management plan plan.