FINDING FREEDOM FROM DEBT

Last month we discussed some practical tools one can implement when their business hits a rough patch. One of the points on the list was repaying business debts, which is something I’d like to uncover in more details.

Debt is something that often comes up in my conversations with clients, but it’s also something I had to reflect on myself in the first several months of starting Heatwave.

Generally, debt makes me feel uneasy. And for this reason, needing to borrow money to get me through the first several months of running Heatwave felt uncomfortable and, frankly, humiliating.

If you are someone that is savvy about leveraging debt for growing your business, you know that you need a clear plan when taking on a debt and you need to fully understand the repayment commitments. If this describes you, then the below won’t be of interest.

But if you’ve found yourself in a situation where you’ve mismanaged your loans, don’t be alarmed as there’s a way out. And here are some steps that I’ve found extremely useful:

Set your intention

First of all, you’ll need to become intentional about repaying your debts and to acknowledge that it will take commitment and discipline. Being debt free comes with a beautiful feeling of freedom, and visualizing this future can help you immensely in building your new habits. I also like to fuel my confidence in building healthy financial habits with little wins in other areas of my life (for example, sports are great for that as they require similar commitment and consistency).

Identify your debts

Make a list of all current debts you have including both business debts & personal debts.

Prioritize your debts

Understand what you want to be paid first. Pragmatically, you need to identify debts with highest interest rates and repay them first. But psychologically, it might be easier to initially focus on smaller debt amounts. The sense of accomplishment you’ll feel when repaying smaller debts will give you more confidence in paying off the bigger ones. A bit of a snowball method to build momentum.

Avoid new debt

In planning your repayment strategy, it’s crucial that your monthly repayments are manageable enough to make sure they don’t make you accrue new debts. This means that regardless of your monthly debt instalments, you want to remain on track with all ongoing ATO obligations, supplier payments, etc.

Renegotiate your current debt terms

Many lenders would be open to revisiting your current terms with them as it’s in their interests for your loan with them to be reduced. So have a go at approaching them and see if they can offer a lower interest rate.

Increase your profit

This one might need a bit more creative thinking on your end. The question is — are there any ways you can increase your monthly profit so that more cash frees up for your debt repayments? Are there any operational costs you can cut? Can any processes be optimized so that they are less costly? Is there room to increase your revenue by changing your pricing, or introducing new products, or expanding into new markets?

If you find a chance to increase your profit margins, you’ll have a very powerful tool not only to repay debt but also to accumulate wealth.

With the right amount of discipline and accountability, the above steps will get you through it without a doubt. And when you are on the other side, you can then set up some similar processes to 1) build an emergency fund (to never be caught off guard again), and then to 2) start creating wealth.

Most importantly, make sure you share your wins and your concerns along the way with the trusted people. Sharing the load is important, and there are people in your circle that want to help you.

Professionally, a good resource to consider could be Service NSW (for those based in NSW). As well as of course Heatwave can be one of the places you can go.