How can SMEs reduce their debt?

In the world of business, debt management is approached from a different angle to that of the average householder. Depending on the total earnings of the company, a certain amount of debt can even increase the business’s overall ROI. However, push that too far, and debt can have the same effect on a business as it can on an individual.

In some ways, it can be even worse – after all, what is the worst that can happen to an individual? File for bankruptcy and start again with a clean sheet – some have gone from here to great success. For a business, however, there are no second chances. When it goes bankrupt, that is almost always the end of the road.

Clearly, then, it is essential to keep business debt at a healthy level. Here are three ways of doing so.

Reduce unnecessary costs by outsourcing

Staff costs are an enormous drain on resources and go far beyond basic salaries. There are also the costs associated with benefits, HR admin, recruitment, training and various other factors. When a business outsources a key function such as IT to a company like the one shown here, all those costs disappear to be replaced by one fixed monthly payment.

IT is actually an ideal function to outsource for a whole host of other reasons, too. It is typically a drains on time and attention as well as money – and being an area that is constantly evolving, a specialist provider will inevitably be closer to the cutting edge than the good old faithful IT guy sitting in his corner.

Reduced costs means more cash, and more cash provides better opportunities to reduce debt, it’s that simple.

Take another look at your budget

One of the most dangerous phrases in business is “set it and forget it.” It sounds comforting, but in so many cases, it is really just an excuse for sticking your head in the sand. Budgeting is a prime example. When budgets are done, everyone breathes a huge sigh of relief that they won’t have to think about it again for another year.

The thing is, if debt is becoming a problem, something, somewhere is not working as it is designed to. The numbers never lie, so like it or not, you need to return to those budget calculations, whether they were done last week or last year, and find out where the problem lies.

Discuss with your creditors

A wise man once said that when you are not sure what to say, you can always try falling back on the truth. If you’re having problems making repayments, a frank discussion with your creditors can sometimes work wonders. Many will take the pragmatic approach that something is better than nothing, and might be prepared to discuss revised terms, write off a portion of the debt or some up with some other solution such as offsetting what is owing against agreed future work. The key is to do it sooner rather than later, as the longer you leave it, the worse the situation will become.

photo credit: marcoverch Sunny Almond chocolate by iChock with dark almond nougat and crunch via photopin (license)

 

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