How to Manage Your Business Debt: Strategies for Solvency and Growth

As a business owner, the balancing act between leveraging debt for growth and managing its repayments can often feel like walking a tightrope. I'm Tony Lane, Registered Liquidator and managing director of Beacon Advisory, and over my 30-year career, I've dedicated myself to guiding businesses through financial mazes, always with a keen eye on empathetic, efficient, and individually tailored solutions. Today, I'd like to share some insights into effectively managing your company's debt, drawing on both my expertise and our collective experience here at Beacon Advisory.

Understanding the Impact of Debt

How Much Debt is Too Much?

Determining the threshold where debt transitions from a useful financial tool to a burden involves understanding your debt-to-income ratio and other key financial metrics. Excessive and unmanageable debt, especially at high interest rates, can severely impact your company's operational flexibility and financial health. This has become especially evident in the past few years as an increased focus on short-term consumption goals - both at an individual and business level - has driven increased demand for consumer and commercial credit. If you've taken on debt, it's crucial to regularly assess your debt levels against your earnings before interest, taxes, depreciation, and amortisation (EBITDA) to ensure you're not over-leveraged. You also need to check on any covenants that your lender may have imposed, whilst keeping a close eye on the value of any assets that provide security for the debt you've taken on.

The Cost of Holding Too Much Debt

Holding too much debt, particularly expensive debt (high-interest), can significantly drag down your earnings. This financial strain not only limits your ability to invest in growth opportunities, but can also escalate to the point of jeopardising your company's solvency. Recognising the early signs of financial stress and taking preemptive action is paramount to avoiding a downward spiral. In addition, the emotional burden that comes from worrying about debt servicing can and does take a toll on your health and relationships.

Strategies for Reducing Company Debt

Prioritising High-Interest Debt

One effective strategy I advocate for is tackling high-interest debt first. This approach, commonly known as the "avalanche method," helps reduce the amount of interest you pay over time, freeing up more resources to pay down other debts or reinvest in your business.

Debt consolidation

Renegotiating your high-cost debt and rolling those into one manageable payment under a fixed term loan can and does provide relief to those who have accumulated a suite of unmanaged debts. This creates discipline and manages expectations around cash flow requirements and repayments. it also takes away pressure from those pressing for payment. Those cost of accessing facilities of this type may not be cheap, but cheap is a comparative term and sometimes we don't price in the emotional price that is paid.

Negotiating with Creditors

Negotiating better terms with your creditors can also provide significant relief. Whether it's securing lower interest rates, more favourable payment schedules, or even debt forgiveness, open communication with creditors can lead to mutually beneficial arrangements. Remember, it's in everyone's best interest for your business to remain viable and solvent.

Refinancing Options

Refinancing is another avenue worth exploring, especially if you have access to some equity in assets. By refinancing existing debt at lower rates or better terms, you can reduce your monthly outgoings and overall interest payments, providing your business with more breathing room to grow.

Utilising the "How Much Debt is Too Much and How to Reduce It" Video

For more exploration of these strategies, I invite you to watch my video, "How Much Debt is Too Much and How to Reduce It." In it, I delve into practical advice and actionable steps you can take to manage and reduce your company's debt effectively.

Tailored Solutions from Beacon Advisory

At Beacon Advisory, we firmly believe that people matter. In the often impersonal world of insolvency and business restructuring, we prioritise tailored solutions that consider the interests of all stakeholders. Our approach is built on quality, integrity, and timeliness, ensuring that our clients can move forward with confidence in their financial decisions.

Success Stories

We've been privileged to guide numerous businesses back to financial health, each with its unique challenges and solutions. Whether it's through debt restructuring, operational adjustments, strategic planning, or the relatively new Small Business Restructuring arrangements under the Corporations Act, our team continues to deliver outcomes that balance stakeholder interests and promote recovery and sustainable growth.

Your next move?

Navigating the complexities of debt management requires a nuanced understanding of your financial position and the options available to you. It's a journey that doesn't have to be undertaken alone. With the right strategies and support, you can turn a challenging debt situation into an opportunity for renewal and growth.

If your business is facing financial challenges, or you're simply looking to better manage your debt, I encourage you to reach out to us at Beacon Advisory. Together, we can develop a personalised plan that aligns with your unique circumstances and goals. Let us help you pave the way to a more secure financial future.

Contact us today to schedule a consultation and start your journey toward effective debt management.

Disclaimer:

This article is not intended to provide professional advice but rather general information only. You cannot rely on the content of this article without proper advice in the context of your own circumstances. If you have specific concerns, please consult a professional who can provide advice tailored to your individual circumstances.