How to handle debt as you grow your business

While no one likes to go into debt or face the consequences of going into debt, it is inevitable for many companies, as small business loans are required for start up. This is particularly true of small businesses that are starting up in a period of general economic uncertainty. However, in the initial stages and as the business grows there are ways to manage debt.

Debt is a common problem for new businesses


Depending on the business, there may be a variety of financial issues involved in starting a company.  Some businesses may require substantial investment in equipment just to get started, while service-based businesses may simply need time to build up contacts and a customer base. In each case, however, some form of financial backing is likely to be required to cover the first months of trading. This finance may come from an entrepreneur’s personal capital, but on many occasions it is acquired through a business loan from a bank or other financial institution. It is important not to finance any initial debt using a personal loan, as this risks the business owner losing his or her home, should the venture fail.

Ways of preventing debt

The first thing to do when taking steps to avoid debt is to establish a clear picture of the company’s finances. This should be a realistic picture based on facts on the ground and not an over-optimistic projection based on wishful thinking. To help with this, accurate financial data is required, which means sound book-keeping practices.

When planning and implementing financial management, it is essential to balance expenditure with income. If expenditure is higher than income, eventually the result will be debt. In the initial stages of funding company resources, this may be unavoidable, but the principle of the day to day running of a business should be that income exceeds outgoings. To achieve this, spending should be kept under strict control; profit margins should be maximized as far as possible, without threatening sales and marketing strategies should be employed to draw in more customers and generate a higher revenue stream.

Ways of handling debt as a business grows

As revenue grows, any initial debt can become easier to pay off. Nevertheless, it is still important for the business to remain flexible and to monitor and react to changes in the market. Regular on time payments against loans will help to establish good credit in the event that a further loan is needed.  Existing debt should be prioritized, paying off one credit stream at a time until it is possible to consolidate loans into a single place. Low cost or free options should be utilized for marketing, including social media and word of mouth. With careful planning and spending and with the assistance of sound book-keeping and tax advice, debts can be paid off over time, until the business is both self-financing and profitable.