How to Reduce Your Small Business Debt!
By Paul Jenkins -
http://au.smallbusiness.yahoo.com/finance/accounting-bookkeeping/a/-/8752352/how-to-reduce-your-small-business-debt/
 For some small business owners
managing personal debt may have been exacerbated recently by debt
in their business caused by a slowing economy. As for personal debt
in business, there is good and bad debt. In most businesses some
level of debt is necessary, firstly to commence your business,
secondly to keep your business operating and thirdly to expand your
business. Business debt can be good as long as it does not get out
of control. However, there are numerous reasons why it is not
viable for a business to carry high debt levels for too long.
Often business debt can come with a ridiculously high interest
rate, thus taking longer to pay and using up valuable cash flow.
Carrying too much debt may also make it harder to reinvest when
expanding your business or looking to purchase capital equipment.
Increased debt can take away from the quality of your end product
or service as you take from your cost centres to meet debt
repayments. As the owner of a business, high levels of debt may
also cause higher levels of stress, affecting both your personal
life and the decisions you make in your business, and once your
business decisions become worse your final product suffers, thus
affecting your reputation and ability to keep clients.
Debt may also lower the value of your business and make it less
attractive to investors. Too much debt can become a cancer in your
business and can cause your business to spiral out of control with
the ultimate price being bankruptcy of your business and
potentially yourself.
If debt does become a problem there are things that you can do.
1. Look at how your debt is structured and what it is secured
against. If you can, your debts should be consolidated into one
debt and secured against an asset, for example your house, this way
you have the ability to finance your debt over a much longer period
of time and at a lower interest rate. It should also be remembered
that the good thing about business debt is that it is tax
deductible so it is usually a good idea to pay off as much private
or non deductible debt as you can and examine whether you may be
able to just pay interest on your business debt. This also has the
benefit of giving you more equity against which to secure your
business. Any debt restructuring should always be done in
conjunction with your accountant.
2. Look at your life style and take less from your business to prop
up your personal life. For example, should you go on an expensive
holiday? Do you need an expensive car? Do you need pay TV?
3. See where your business can cut costs to make debt repayments.
In taking this step, extreme care needs to be taken not compromise
your quality.
4. Review your business structure with your accountant. This can
affect the amount of tax you pay and you ability to defer tax
whilst you repay debt. Your business structure will also play a
vital role in protecting your personal assets if your worst fears
are realised and a debt provider takes action against you.
The most important thing to do is to have a plan, rather than hope
the problem will fix itself. It generally doesn’t at this stage
of the business cycle.
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