Getting into debt as a business owner can put both you and your business at risk.

By Cheryl Davis

Owning a business always comes with financial risks and borrowing money is sometimes a useful way to get started or help to grow business during a slower period. However, if you have borrowed for the business and other financial events take you further into debt, then it could start to become an issue. That’s why we have put together this quick guide to avoiding debt as a business owner.

Understand that you can’t control everything

There is always risk in owning a business and you can’t control everything – negative events in the stock market or a media issue in your industry that wipes out share values, for example, but you can try to be prepared.

If the worst happens you need to deal with it and take action – don’t just sit back and hope it will go away without you doing anything. Ignoring debt is the worst possible mistake you could make – there are always options to resolve it.

Recognize the situation and do something

If you are not able to make your payments and your debts start to mount up you cannot ignore it. You need to face it head on and come up with a plan of what to do about it. Otherwise you could end up facing a court case and bailiffs knocking at the door.

If you can’t pay your tax bill due to debts then the tax office will be on your case and you could end up in an even worse position so as soon as you think there might be a problem with paying your bills, you need to talk to people.

Better still, use accounting software to help you keep on top of all your income and outgoings and look ahead to when large bills like your tax bill are going to be due. You need to plan ahead and save in advance to make sure you don’t suddenly end up with a huge bill you can’t afford.

Identify your priorities

If you do find yourself struggling to pay all of the bills then you need to look at what you owe and prioritize the most important bills that you must pay, above any others. So have a look at things like payroll for staff, rent and utility bills, secured debts, insurance, credit cards – these should all take priority over anything else you need to pay for.

Take preventative action

If you think you might have debt issues in the future, then you could try renegotiating loan rates to help lower the payments. You need to come up with a plan of what you can pay and when and discuss the problem with your creditors. Be positive and explain what the issues are and how you intend to resolve it. It’s always better to approach the creditors proactively rather than have them calling you to chase up missed payments.

Boost your business sales

A sure-fire way to help avoid debt is to boost your sales to bring in more income. You could try taking actions such as offering a sale or discounts, adapting your business model or offering a new range of products. Increasing your income will help ease the debt burden.

Reduce your business costs

You should also look at areas you could cut business costs, for example, do you need to rent an office or can you operate from home. Think about your wages bill – can you cut down on staff? It’s also worth looking at consolidating or refinancing your debts if you are able to. Try negotiating with your existing suppliers for a discount or using new ones.

Don’t cut back too much though as you don’t want to destroy your business in the process of paying off your debts. After all, closing the business down will leave you with no income at all, which is definitely not going to help the matter.

Look for alternative sources of income

If you can’t increase your income through new clients, then try other options like liquidating any assets you own and potentially looking for new investors into the business. You should do as much as you can to keep the business running but if the worst comes to the worst, you might have to close it down.

Whatever happens, make sure you take action to resolve the problems as quickly as possible, don’t try to bury your head in the sand – debt won’t magically disappear or go away overnight – you need to take control and explore all the options available to you. Being in debt can be scary but allowing it to get away from you is worse – always seek help and advice.

Cheryl Davis is a freelance finance writer. She contributes to a number of online publication and is currently working for When not looking at finance and business news, she can be found in her local library doing storytelling hour for kids.

Debt stock photo by Olivier Le Moal/Shutterstock