Debt can be a useful tool to start and grow your business, says Victoria Crone, Managing Director Xero NZ, but small business owners need to make sure their debt is working for, not against them.
“When a substantial amount of expenditure goes towards servicing debt rather than investing in the business, small businesses struggle to grow and can often get into trouble when expenses and debt begin to consistently outstrip revenue,” says Crone.
“As a small business owner, getting on top of your debt is one of the best New Year’s resolutions you can make.
"More than a third of small business owners feel uncomfortable with their levels of debt, but taking a few steps to get things under control now can go a long way to making your finances easier to manage in 2015.”
According to Crone, here’s where you can start:
Get visibility over your debt:
"If you’re managing your finances through spreadsheets, you probably aren’t aware of all your debt obligations," Crone says.
"And, if you’re not aware of your debt, you can’t make a plan to get on top of it. You need to have this information at your fingertips at all times."
Prioritise your debt:
"Not all debts are created equal," Crone says. "Prioritise your debt by asking yourself “what would happen if I didn’t make this payment?” The more unpleasant the outcome, the higher priority the debt.
"Payroll is usually the highest priority, because if your people aren’t getting paid, they have no incentive to work.
"And, if they’re not working, they aren’t generating revenue to help you pay off the rest of your debt. The same goes for your top suppliers and business partners, although not to the same extent."