Debt is a fact of life for many businesses. Almost everyone uses some form of borrowing – even if it’s just a credit card for covering expenses. After a tough trading year, you may be carrying heavier debt burdens than usual.

It can be a challenge, that’s for sure – but it needn’t get out of control. If you’re serious about taking charge of your finances, then a plan to effectively manage debt should be your next step. It can be a challenge, that’s for sure – but it needn’t get out of control. If you’re serious about taking charge of your finances, then a plan to effectively manage debt should be your next step. 

1. Develop a debt management plan

When it comes to tackling debt, one size doesn’t fit all – there are many different reasons why you may need assistance with your finances. Experience shows that a good approach to successful debt management is a tailored approach, one that meets the individual needs of your business.

To begin with, it’s important to know where and how money is being spent. Many businesses don’t keep a detailed record of ingoing and outgoing income – and if you’re one of them, why not make 2010 the year to change that? Because once your accounts are in order to look over, you may be surprised to see how money is actually being spent.

Ask yourself questions like:
• Do I know the true cost and profitability of everything we do? Our services? Our products? Our customers?
• What are our margins? Do we have room to cut costs and still remain profitable?
• Can we afford to add extra services or will this compromise our ability to provide others?

When you’ve identified your spending habits, it’ll be easier to develop a plan that will work based on the way you run your business.

• Developing a daily, weekly, or monthly budget • Recording all your ingoing and outgoing income in a spreadsheet or notebook for easy viewing
• Beginning to pay off some old debts (the high-interest ones should be first 
on the list).

2. Find the right loan for your borrowing

There are a number of ways you can structure your finances. Often, it’s about identifying the difference between short-term cashflow measures and longer-term debt management. Then you just need to find the solution that works best for each specific borrowing purpose. For example a credit card may be best for paying for taxis, whereas a revolving overdraft facility works better for managing cashflow.
For longer-term debt management, while it might seem like a logical choice, putting the money on your home loan may not be the best option for you and your business. Instead it’s often a good idea to mix and match the funding to the asset type. This is where Equipment Finance can be really useful. These loans are designed to be paid off over the life of the asset rather than on a mortgage, potentially saving you money on interest payments in the long-term. There are also plenty of other options for debt consolidation (the process of taking out one loan to pay off several others). Debt consolidation can often secure you a lower interest rate, a fixed interest rate or you can simply benefit from the convenience of servicing just one loan.

3. Get as much advice from the experts as you can

If you’re finding it hard to manage debt on your own, ask your bank for help. Be as proactive and energetic as you can in asking for advice from experts, who can keep you in touch with the latest economic thinking and key indicators. Then your business can stay on the pulse through these tough times and beyond.

With the current economic environment full of opportunities and challenges, there’s one thing that’s on your side: everyone’s driving towards the same goal. Carrying debt can be extremely stressful for anyone. Times were tough last year, and the Christmas period is never easy either. So there’s no better time to look at your business finances. We understand it’s not easy and as a market leader in providing a range of financial solutions, we can help you manage your debt the way that suits you and your business best.

We can help you take control, get back on track, and start the year afresh. For more information call your Westpac Business Manager or BusinessDirect on 0800 177 567.