Every business no matter how big or small will at some points have debts to pay. These could be ongoing repayments, large lump sums or through utilities and bills. It’s not uncommon for business to live and survive with debts, the day-to-day trading of a business can often mean someone is owed money, but at what point does it become untenable and at what point can debts destroy a business?
Assess the situation
If you’re worried about too many debts, or certain debts within the business, the first thing to do is to assess how serious the situation is. Are you struggling to pay all your basic outgoings? These are payments like: mortgage, rent, energy bills credit cards? Secondly assess whether your outgoing debts are bigger than a year’s basic income after tax. If you can service your debts, even if they’re only the minimum payment, then you aren’t in trouble.
The second most common form of debt that can damage a business, is a large unpaid bill. This usually comes in the form of a large piece of equipment, or unexpected damages impacting you financially. Large bills like this can totally outset your financial plans. Although this can put you in a bad place, it doesn’t have to destroy your business.
Thirdly, are you in a debt spiral? A spiral of debt usually stems from a combination of the first two. A large debt has unexpectedly come along, forcing you to borrow more, which then sets you on a downward spiral of not being able to pay your basic outgoings. Again, although it might seem bleak, there always solutions to be found.
I always have ongoing debts
Having to always owe someone money is commonplace in business. Depending on when your business makes payments, you could see yourself owing money to a supplier or landlord at the start or end of every month. With monthly payments like these though, it doesn’t always have to mean that your business is struggling or doing things wrong.
If you’re able to constantly pay your basic outgoings, there isn’t a lot wrong. However, if you want to trim them down, or shave off some, why not look at cheaper alternatives to company credit cards or suppliers, or look at overpaying on mortgage repayments.
How can I sort out my large debt problem?
Business face challenges throughout their life span. But nothing seems worse than a piece of machinery breaking, damage to an office or a car breaking down. These are all common problems that business face, amongst many others, that cause large debts. To get themselves back on track, owners will often take out large bank loans, that lead to large repayments and can send you downward into a spiral of debt.
When you come face-to-face with a problem like this, you first have to look at the business and see if it’s actually making the right money to genuinely be able to pay the debt. If you can, it might just be a case of talking to your lender and re-organising a better repayment structure. Or talking to your other lenders where you pay your basic debts and sorting out better terms.
What are the financial solutions available?
Although there are ways of dragging yourself out of trouble, if the debts have simply become unmanageable, there are financial repayment plans that can help pull you out of debt. A company voluntary arrangement is a means of pooling together all of your debts and then paying them off in one affordable monthly amounts, these usually last around 5 years and any remaining debt at the end of the agreement is wiped off. If your struggling individually, you can do the same kind of repayment plan to sort out your personal debts, this is called an individual voluntary arrangement.
Interesting Related Article: “Debt Solutions to Common Debt Problems“