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Tips for Effective Debt Management

Throughout the pandemic, there has been a large rise in the number of new businesses and the success that they have. However, there has also been many businesses who are struggling and even potentially entering debt territory. If you are currently in debt, it does not have to be perceived negatively. Instead, you need to shift your approach to managing your debt to curate a well thought out method and procedure to tackle it head on.

Keep a prioritised list of your creditors!

When attempting to manage your debt, it can be extremely easy to get lost in tracking what you owe and who owes you. This can then make it more complicated to remember your repayments, therefore, ensure that you have an organised spreadsheet of your creditors by either date that you owe them, the size of the debt or whichever method works for you.

This will assist in figuring out a very clear view of what you owe to who. As well as this, it will help you decide the most cost-effective strategy for paying off what you owe. It might be easier for you to tackle the smaller debts first or alternatively, the debt with the highest interest rate. This will be dependent on several factors which are unique to your business.

Consider consolidating your debt!

Debt consolidation is the process where a lender will add up all of your debts into one loan. Through doing this, you are able to have a lower interest rate on your loan that allows you manage the debt through one monthly payment. This is considered an extremely controversial method of managing your debt however, it is simply about weighing up the positives and negatives to make the best choice for you.

Manage your ratios!

Your business’ debt to equity ratio is something can be calculated very easily. All you need to do is calculate all of your debt (total liabilities) and divide it by your reserves (equity). This is something that will be very handy if you are considering taking out a loan as many of your potential lenders will ask you for this number.

Also keep an eye on your liquidity ratio. This shows your ability to pay off your short-term debts. This is short term liabilities divided by cash (cash ration) or Current Assets (Current Ratio). Therefore, try to make sense of your number and if you want to know more about what this means, click here.

Understand the importance of a cashflow forecast!

A cashflow forecast shows both the money coming in and exiting your business. This makes is one way to stay on top of your ability to pay debts further down the line. Therefore, in the event that you cannot pay your debts, this allows you time to take action in advance and get ahead of the problem.

Business debt can be a really stressful time for you, however, utilise these tips and see how you can start tackling them off the list. If you do feel that you need more assistance through managing your debt, you can contact us here.

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