Business Debt Management

For any business, and especially smaller owner-managed businesses, the temptation to ignore debt problems can be overwhelming.

However, this can be the biggest mistake any business owner can make. If a business faces up to its debt problems at the earliest possible opportunity, then there is a high possibility that liquidation can be avoided.

This is never easy however, and good business debt management will require good planning and negotiations with creditors to avert a crisis situation. Most businesses will have to change the way they operate and make significant sacrifices to clear debts and return to profitability.

As with personal debt problems, there are many companies out there that will provide help and advice when it comes to dealing with business debt management. The company or business will need to assess incomings and outgoings, cut costs wherever possible and enter into informal agreements with its creditors which may reduce repayments and/or waive interest on debts.

If you own a small business, be sure to prioritise your debts to make sure the most essential ones are dealt with first. For example, the rent/mortgage on your premises or hire purchase payments for essential equipment would come under this category.

You should also look at how your business is financed. The most common kind of loan for business is debt financing. This is the borrowing of money to keep a business running, to expand a business, or to acquire assets.

It can be used for long term financing for larger assets such as real estate or machinery; or for the short term financing of supplies or payroll costs.

However, equity financing, which involves the acquisition of money from investors and/or savings, could be an ideal alternative if debt problems arise.

Equity financing offers a number of advantages. Top of the list is the fact that equity financing does not have to be repaid and the business does not have to be used as collateral to get this kind of investment.

Also, money does not have to be repaid from your personal funds in case of bankruptcy, as happens with debt financing. In addition, if your business has equity then it will be looked on more favourably by investors, lenders and the Revenue Commissioners in the future.

However, if your company is already in financial trouble it may be difficult to secure equity financing. You may have to offer a significant share of ownership rights for a low price to secure such funding. However, if the business has the potential to return to profitability it may be worth it.

Business debt management is a vast and complex subject that we have only touched on here. There are many options that may be right for your business. Refinancing debts into one cheaper long-term loan may be the right option for you.

You could also look into options like debt factoring to help ease financial pressure. It is advisable to seek the advice of a professional before making any final decision.