How Much Small Business Debt is Too Much?

There is no straightforward answer as to how much debt is too much — it depends on the type of debt you’re carrying and the kind of business you run. How well you’re able to manage that debt matters, too.?

If your business regularly misses payments or runs out of cash before the month is over, that’s a sign you have too much business debt. If your business debt exceeds 30 percent of your business capital, this is another signal you’re carrying too much debt.?

Most business owners have no plan for debt repayment. They make the payments and hope that, eventually, it will go away.

In my experience with hundreds of small businesses, most NEVER pay-off debt.

They don't make a plan to clear off the debt. Something always comes up and they slide further into debt.

They don't look at the debt because it sits on the Balance Sheet and is rarely reviewed.

1. All debt should be accurately recorded on the Balance Sheet. Make sure that it is!
2. Debt is split between "Current Liabilities" (generally credit cards) and "Long Term Liabilities" (generally loans). Add those 2 numbers up.
3. If that number is greater than all your Assets on the Balance Sheet, you owe more than you can repay. If this is your situation, you should sit down and put together a financial plan.

There are many factors involving business debt and assets. Every business is different. But hear me on this: DEBT IS DEBT. Period. The business owes something to someone.

When it comes time to sell the business, this will matter.

If you want to give the business to a family member upon your exit, this will matter.

If you die unexpectedly, this debt will matter to the person who has to close the business down or keep it going.

DEBT MATTERS.

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My name is Diana Miret.? As a fractional CFO, I provide financial counsel to businesses earning between $1M and $10M to increase profitability, optimize cash flow management and heighten financial confidence and clarity. You can find me at www.dianamiret.com