7 ways to reduce your business debt
If your business has problems with debt, there are a number of things you can do to help tackle it.
1. Consolidate or refinance your loans +
If you have a number of different loans, you may be able to reduce the monthly burden of your debt payments by consolidating your existing loans into one loan at a lower interest rate.
If you just have one loan, you might want to refinance it.
Learn more in our guide to consolidating or refinancing your business debt
2. Cut costs by implementing a zero budget +
A zero-based budget can help you lower your costs by making sure you’re justifying every penny of your business’ outlay, thereby reducing needless spending. It also helps you to enforce a culture of cost management throughout your business.
However, the process can be complex and there may be opposition from managers who fear their budgets are under threat and who don’t relish having to justify their spending.
3. Improve cashflow +
Depending on your business, there may be things you can do to bolster your cash position.
Here are some simple measures you can put in place:
- Improving your process for chasing up debtors. Learn more about how to deal with late payments
- Agreeing payment terms in advance
- Renting rather than buying equipment or vehicles
- Selling and leasing back assets, such as machinery, equipment, computers, phone systems and even your business premises. The Finance and Leasing Association works with companies that provide this form of finance.
4. Seek out grants and support +
You may be eligible for grants or other forms of support to help offset your debt.
Also available are a range of regional and industry-specific business grants, although you’ll have to make sure you meet the eligibility criteria.
5. Seek equity finance +
One way of reducing your debt is to raise money by selling a share of your business to existing or new investors. You needn’t lose control of your business, provided the investors take a minority stake.
According to Shaun Barton, National Online Business Operations Director at Real Business Rescue, part of corporate recovery specialist Begbies Traynor:
“Investors are abundant and looking for a good deal. And it’s not just their cash that’s available, but their expertise too.”
Common equity finance products include:
- angel investment
- venture capital
- private equity
Learn more about raising equity finance
6. Increase sales +
Increasing sales is one way of improving cashflow in the medium term, although you may need more working capital in the short term to produce the goods or services you’ll sell.
Digital channels can offer a cost-effective method of improving sales, as many small businesses have found during the coronavirus pandemic.
7. Restructure +
If your business can’t:
- trade its way out of debt
- get additional finance, due to its limited financial performance
using an insolvency process to restructure itself may make sense.
Learn more about the different types of insolvency process.
How insolvency can help
According to insolvency practitioner Moorfields Advisory, an insolvency process can allow you to:
- rationalise (reorganise) your business without the need to expend substantial working capital
- compromise some liabilities (determine which debts you’ll need to pay in full, and which you won’t) and potentially recover losses sustained during COVID-19
- refinance or secure additional capital, where previously your weak balance sheet or low levels of working capital made you unattractive to lenders
Read more about insolvency in Moorfields Advisory’s useful guide
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