What’s New In Debt Management for Small Businesses?

Debt is a necessary part of running a small business. No matter the size and scope of your startup, it’s likely that you will need to borrow at least some money to launch, especially if you’re a first-time business owner. These funds may come from a bank, credit card or private lender, but they all have one thing in common: they need to be paid back.

When the debts mount up, however, and you can’t meet your repayments, the future of your business is at risk. In this case, you’ll want to handle your debt without sacrificing business growth.

The good news is that with the right debt management plan in place, there’s no reason why your business can’t bounce back from debt. Thanks to some of the latest innovations in financial management, freeing your business from debt is easier than ever.

Why small businesses get into debt

According to a 2016 Experian study, the average U.S. small-business owner is an incredible $195,000 in debt. Experts claim that businesses should aim to have all of their debts repaid within the first 12 months of opening to increase their chance of survival. However, this isn’t always possible.

Many companies end up further in debt than they’d like for a number of reasons. These include:

  • Poor cash flow management: 82% of businesses fail due to cash flow issues. The most common issue is clients not paying their invoices on time.
  • Economic recession: During economic recessions, there is typically a drop in consumer demand. Small businesses are hit the hardest, particularly in inventory-intensive industries.
  • Natural disaster: Reports show that 40% of small businesses never recover after a disaster.

Too much debt can stifle your cash flow, prevent reinvestment, and put your business at risk. Therefore, it’s important to handle your debt before it gets out of control.

Priority and non-priority business debts

Priority business debts typically include business rent arrears, business rates, tax arrears, accountant bills and debts to major suppliers. These are the debts you should focus on paying back first. Priority payments also include employee wages, as you may be penalized if you cannot pay these on time.

Non-priority debts include bank loans, overdrafts, credit cards, payday loans, and non-essential business suppliers.

Dealing with debt: steps to take

Dealing with your debt gets harder the longer you leave it, so it’s best to come up with a strategy right away. That way, your business can get back in the green and avoid bankruptcy.

1. Take inventory

Taking inventory of your debts can be overwhelming, but it’s necessary if you want to manage your cash flow effectively. Burying your head in the sand will only make the situation worse, so try to be objective and practical about the money you owe.

2. Renegotiate loan terms

By talking to your creditors, you may be able to negotiate better repayment terms. These may include reduced interest rates, lower monthly cost, and a longer repayment term. Beware that if your bank or lender perceives you to be at risk of default, they may insist on higher interest rates.

3. Reduce business costs

If your business has a cash flow problem, the first thing you should do is to try and reduce your costs. You can do this by renting a smaller space, negotiating with suppliers for cheaper deals, reducing costs of services like Internet and phone lines and minimizing energy use.

Innovative solutions for small business debt

There are various debt solutions out there for small businesses, such as debt consolidation, liquidation and – as a final resort – bankruptcy. However, you may be able to deal with your debt independently using the latest technology.

• Accounting software

There are a number of cloud-based accounting solutions on the market for small businesses that will make it easier to manage your debts. Accounting solutions for small businesses include Xero, QuickBooks and Zoho Books. Bear in mind that although you have to pay a monthly fee for most software packages, the average saving for a small marketing firm with 5-20 employees comes in at over $20,000 per year.

If you do your accounts yourself and your budget can’t stretch to cloud software, you could use a free online tool. The Debt Eliminator is a free, customized debt plan created by financial guru Suze Orman. Unlike some of the other tools out there, any information you input into this calculator isn’t stored or saved, so it doesn’t pose a security risk.

“The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem,” Suze Orman.

• Expense tracking

As well as keeping on top of your financial obligations, you also need to monitor your everyday expenses. A few dollars spent on pens for your office or coffees for the team might not seem like much, but over time, these expenses can rack up.

If you want to take control of your debt, you need to account for every cent that comes out of your business. These days, there are plenty of expense tracking apps and tools you can use to keep on top of your spending. Most can be used on your smartphone or tablet. Some even have receipt scanning functions, intuitive interfaces, and GPS tracking to store miles for your vehicle.

• Tailored financial advice

Research by UK software developer Reckon found that that financial management is the biggest concern of small business owners. According to the study, 20% of small businesses admit to not keeping on top of their business finances. If you fall into this category, seeking tailored advice from a financial advisor could help get your business back on track.

Many accountants and financial advisors work online these days. Therefore, you don’t need to go into your bank or set up an appointment to get tailored help. Most financial planners charge for their services. However, consulting an expert about your business finances will help you remain disciplined when it comes to paying back your debt.

Remember that while outsourcing financial management may cost in the short term, it does provide long-term value. If your budget can’t stretch to one-to-one advice, you could use a full-service financial planning tool. Futrli gives you in-depth insights and helps you make better financial decisions for your business. The tool also syncs seamlessly with Xero and QuickBooks.


Debt is not unusual for small business owners, but you don’t need to drown in it. With perseverance, proper planning, and the right financial tools, your business can get out of debt without limiting growth.

Timothy Kelly

Timothy Kelly

Tim has been a writer for over 20 years covering financial markets and small business. In addition to writing about the financial markets, Mr. Kelly writes extensively about digital marketing and SEO. Mr. Kelly attended Boston College where he studied English Literature and Economics, and also attended the University of Siena, Italy where he studied studio art. Mr. Kelly has been a decades-long community volunteer in his hometown of Long Island where he established the community assistance foundation, Kelly's Heroes. He has also been a coach of Youth Lacrosse for over 10 years. Prior to volunteering in youth sports, Mr. Kelly was involved in the Inner City Scholarship program administered by the Archdiocese of New York. Before creating ForexTV, Mr, Kelly was Sr. VP Global Marketing for Bridge Information Systems, the world’s second largest financial market data vendor. Prior to Bridge, Mr. Kelly was a team leader of Media at Bloomberg Financial Markets, where he created Bloomberg Personal Magazine. Contact Tim tim.kelly@smallbizstar.com