Xero: 7 ways to manage SMB debt in 2015

Debt can be a useful tool to start and grow your business, but small business owners need to make sure their debt is working for, not against them.

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."

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Renegotiate bank loan terms:

"You can renegotiate your bank loan depending on your situation," Crone says.

"If you need more cash in the short term, you can ask for a higher interest rate in order to reduce your monthly payments – even though the overall repayment amount will be larger."

Work out a payment plan with your creditors:

"If you are having trouble paying off your creditors, talk to them before they come asking for their money. If you put together a clear payment plan, they will be more receptive," Crone says.

"After all, it’s in their interests for your business to succeed; if you go under, they get nothing."

Ask your biggest suppliers for a discount:

"Don’t be shy," Crone says. "The people you buy from in bulk and / or have a long history with are great candidates for getting discounts.

"These discounts can add up, and the savings can go into paying your debts."

Cut short term costs:

"Accounting software gives you visibility of your largest outgoings, so you can see which costs to cut," Crone adds.

"For example, you could reduce the amount of office space you lease. Be sure to think carefully about where you cut costs – sometimes it can be counter-productive.

"If you lose your biggest customer because you cut your ability to serve him or her for example, you’ll be worse off than you were in the first place.

Look for opportunities for more revenue:

"Easier said than done – but it’s not impossible," Crone adds.

"One way to get a short-term boost is to offer clients a prompt payment bonus. You’ll lose a bit of revenue, but you’ll have the cash you need to service your debt faster."