Managing Business Debt: Tips for Staying Financially Healthy

Thursday, 5 Oct 2023

an expert bookkeeper in Melbourne is working on company debt

Businesses need capital to continue catering to the demands of their target audience. In the introduction and growth stage of the business lifecycle, it becomes imperative to take out a loan to meet the operational, marketing, administrative and distribution needs of the entity.

Entrepreneurs in Melbourne usually approach banks, venture capitalists, angel investors and other moneylenders to borrow money that must be repaid within a stipulated period. These debts effectively expand the business and improve its credibility in the industry.

However, repayment can become problematic if the venture does not generate the projected sales. Managing business debt needs careful planning to avoid financial deficits. Here are a few tips for staying financially healthy. These will help you maintain perfect credit scores and quick repayment. 

1. Use Accounting Software to Organise Debts

The business owner needs to know about all the outstanding debts and organise them according to priority. Big loans with high interest rates and early due dates are critical for the entity and must be dealt with first.

Expert bookkeepers use accounting software to organise debt-related data. It helps to identify the remaining balance, interest rate, monthly payments and deadlines. Organising data ensures that these payments are not missed, and the business has enough funds to meet this expense.

If the business fails to repay, it can lead to litigation and bankruptcy. Besides business loans, entrepreneurs in Melbourne have to pay other debts, such as salaries and wages, monthly rent, credit card payments and business taxes. The bookkeeper keeps track of all these payments and steers clear of lapses.

2. Refinance Bank Loans For Favourable Terms

If the debt repayment seems challenging because of low sales, entrepreneurs can seek the assistance of experienced bookkeepers Melbourne to get the loan refinanced. They review and renegotiate the loan terms to increase the repayment time plan. If the loan term increases, the bank usually asks for a higher interest rate to reduce the risk.

It can be managed when the sales increase again. Another way to reduce the financial burden is to ask the bank for a lower interest rate or smaller monthly repayment amount.

The bookkeeper can also help with tax deductions of debts and consolidate them into one manageable repayment plan. The lenders will be ready to renegotiate the terms if the entrepreneur has a good credit score. 

3. Review Your Business Budget

Budgeting is a significant aspect of financial management and is even influential in debt management. It helps the entrepreneur effectively utilise the available capital by allocating reasonable funds to each department.

Proficient bookkeeping ensures that the budget includes income from all sources and fixed and variable costs. In addition, the business budget should include cash flow forecasting to determine if the business can pay its bills and use the surplus cash to expand.

It helps to set aside money for debt repayments and determines the income needed to create a positive cash flow.     

4. Increase Your Sales and Revenue

Paying money back to lenders requires generating enough cash. Melbourne bookkeeping companies suggest boosting sales and profits to help in this regard. When business owners struggle with available cash, they must offer discounts and improve marketing to increase sales. They should sell more to loyal customers and ask for referrals and testimonials for brand advocacy.

Businesses can enhance revenue by starting e-commerce services and asking suppliers to reduce the cost of stock. They must manage the inventory proactively and make the clients pay before the due date to increase the incoming capital. Bookkeepers help with this by following up with customers and invoicing immediately.

5. Bring Down The Business Costs

Debts can become overwhelming when the business has a long list of expenses that are exhausting all the capital. It is vital to adhere to the advice of professional bookkeepers in Melbourne who recommend cost-cutting for cash flow improvement. Spending can be reduced by reviewing the expenses and switching to affordable options.

For example, the business can relocate to a smaller office or hire freelancers and remote workers. They can find suppliers who offer stock at a lower price and use free tools instead of paying subscriptions. However, these changes should not affect the quality of output and delivery to customers.

6. Borrow Money to Pay Business Debts

Taking out a new loan to pay the existing one is not a good idea. However, it is essential when you are unable to repay the debt. It can save your business from going bankrupt. Entrepreneurs can ask family and friends to invest in the entity. They can become shareholders in the company or provide an interest-free debt.

Melbourne bookkeepers also recommend selling a few assets to pay off unmanageable debts. Business owners can lease them later to avoid disruption and litigation from creditors. They can also look for grants and support from the Victoria government to stay afloat in times of crisis.

Wrapping Up

Running a business requires significant capital that needs to be borrowed. Paying the amount back can become problematic when the income is not as expected. So, follow the debt management tips mentioned above to avoid losses and become debt-free quickly.  

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