Here are my top 5 debt management strategies:

Make an effort to truly understand your company’s current financial situation

This can be clearer when you fully embrace your business budget. We discussed business budgeting in last month’s blog and we must emphasise this again. Don’t leave it until you can’t pay your bills before you rework your budget.

Your budget will clearly identify your sources of income, your fixed and variable costs and, importantly, your loan repayments. It can help you identify areas where you need to make changes. Don’t hesitate to sit down with your bookkeeper or accountant to find ways to better manage and understand your current financial situation.

Better manage your Cash Flow 

This is another topic we looked at in last month’s blog and one that is incredibly important. You can be highly profitable on paper, yet still not be able to meet your obligations on time. So, what are some ways you can improve your cashflow?

On the sales side:

Ensure your invoicing of products and services is not delayed. (Automation or better technology may help with this)

Set up automated payment reminders

Set up automated payments by direct debit

Regularly review your debtors and chase them up

Consider implementing a stronger process for customers who regularly pay late

Review credit terms

On the payables side:

Consider your stock and inventory. Do you really need to keep the level of stock you currently have?

Find ways to cut fixed costs

Negotiate better deals with your suppliers, including better prices or better payment terms.

Consider how you can increase your profit

When was the last time you increased your prices? This can be something that is overlooked. In my experience, many business owners continue to charge the same price for their goods and services, year after year. Often this is for fear of losing customers, but indeed, this very rarely happens. Customers are with you, mostly, because they know, like and trust you, and know they get good customer service. There are always a certain percentage of customers who might shop around if you increase prices, but of course, price increases are inevitable as costs rise for you too.

Consider the products where you make the most profit. Sometimes, as a business owner, you can focus on what you think is your ‘best’ offering, but it might not be making much profit. Look at all your income and sales and work out the profitability on each area of income.

Prioritise and Review your debts

Your debts can be made up of variety of obligations. From bank loans, overdrafts and asset finance to ATO and Super Guarantee obligations, as well as State based tax such as Payroll Tax, it can all become a little overwhelming. Some government obligations, like Superannuation, means your employees’ super must be in their accounts by a very specific time. Even missing the deadline by one day can mean significant penalties. If you continue to be fined for late payment, you’re literally throwing money down the drain.

Some liabilities may have more adverse consequences if they are paid late, so review your debts and stick to your budget, to stay above the line.

Reviewing your debts, may lead to you refinancing or consolidating loans. Loans taken over different periods of time with different interest rates, may be better managed when consolidated into one easy payment.

Remember: Prevention is better than cure! By regularly reviewing your financial position before things get tough, you are better-placed to make rational decisions, like consolidating loans, and more likely to have success with business financers and banks.

Understand your responsibilities as a small business owner 

If your business has a sole trader structure, you are fully responsible for any debt. As a company director of a Pty Ltd company, the debt is the company’s responsibility, however, you cannot act illegally or trade while insolvent. The ATO can also send you a DPN (Director’s Penalty Notice) that can hold you, as a company director, accountable for tax debts, including PAYG, GST and Superannuation. This is a huge topic in itself, and if in doubt, talk to a legal practitioner or accountant about your responsibilities.

Being that 97%* of businesses in Australia is classed as Small Business (up to 19 employees), the ATO does have plenty of ways in which it supports small business, despite its negative reputation. If you’re really struggling, work with your bookkeeper to negotiate with the ATO on getting your business back on track.

Here’s a link that might be helpful. 

https://treasury.gov.au/sites/default/files/2020-12/simplified-debt-restructuring-fact-sheet_0.pdf

The message for this blog, is to not wait until things get really tough before taking charge of your debt. Debt is often necessary in running your business, but there are ways in which you can better-manage your obligations.

If you ever feel your debt may be getting out of control, talk to us at WestBAS for support and information.

*https://www.asbfeo.gov.au/small-business-data-portal/number-small-businesses-australia