Managing Business Debt

Debt can be one of the most misunderstood parts of running a business. For some owners, the word itself carries negative weight. Debt feels like something to be avoided at all costs. For others, it’s seen as an inevitable part of growth, just another line item to carry on the books.

The reality sits somewhere in the middle. It’s how you use and manage it that determines whether it becomes a burden or a tool for growth.

1. Understand Your Debt Landscape

The first step is clarity. Many business owners carry multiple forms of debt including trade creditors, tax liabilities, bank loans, credit cards, equipment finance, and family loans. Without a consolidated view, it’s easy to underestimate the total exposure.

Ask yourself:

  • What debts do I have outstanding?

  • What are the interest rates and repayment terms?

  • Are any debts secured against personal or business assets?

  • Which debts are short-term versus long-term?

Creating a simple debt register is one of the most valuable steps you can take. List each facility, the amount owing, repayment schedule, and interest cost. This creates visibility, which is the foundation of better decisions.

2. Distinguish Between “Good” Debt and “Bad” Debt

Not all debt is equal. A short-term loan that helps you buy inventory for a seasonal sales spike can be entirely appropriate. A long-term facility that funds expansion into a profitable new market can fuel growth.

On the other hand, carrying high-interest credit card debt or using borrowed money just to cover day-to-day expenses can quickly spiral into risk territory.

The distinction often comes down to whether the debt is helping you generate income and build long-term value, or whether it’s simply propping up cash flow gaps with no return.

3. Build Debt into Your Cash Flow Forecast

One of the most common mistakes we see is ignoring debt when forecasting. Business owners may plan out sales, costs, and overheads but forget to layer in loan repayments, interest, or balloon payments that will fall due.

A proper cash flow forecast should include:

  • Scheduled loan repayments

  • Interest charges

  • Any covenants that might trigger additional payments if breached

  • Upcoming tax liabilities

By mapping these into your forecast, you can anticipate pressure points well in advance. That might mean organising additional facilities, negotiating revised terms, or tightening spending.

The key is to avoid surprises. Debt becomes highly dangerous when repayments sneak up on you.

4. Pay Down High-Interest or Risky Debt

If you’re carrying multiple forms of debt, not all should be treated equally. A 20% credit card facility is far more damaging than a 6% business loan. Similarly, an overdraft secured against personal property carries more personal risk than an equipment lease.

A good rule of thumb is to:

  1. Pay down the highest-interest debts first.

  2. Eliminate debt tied to personal guarantees where possible.

  3. Refinance into lower-cost, longer-term facilities if the business has stabilised.

5. Strengthen Your Relationship with Lenders

Too many business owners only talk to their bank when something has gone wrong. That’s like trying to buy insurance after the house has burned down.

The better approach is to engage proactively. Share your financials regularly, explain your strategy, and highlight any risks early. A bank that understands your business will be far more open to extending terms, restructuring repayments, or supporting you through a tough season.

6. Use Debt as a Strategic Lever

The businesses that thrive are those that treat debt as one of several tools in their financial toolkit. Instead of relying on it reactively, they deploy it strategically.

Examples include:

  • Working capital facilities to bridge the gap between paying suppliers and receiving customer payments.

  • Asset finance for equipment that generates new revenue streams.

  • Growth loans that enable entry into new markets or products with strong forecasted returns.

In each case, the decision comes down to whether the expected return outweighs the cost of debt.

7. Know When to Restructure or Step Back

There are times when debt becomes unsustainable. Warning signs include:

  • Consistently using new facilities to repay existing ones.

  • Interest payments eating into profit margins.

  • Breaching covenants or struggling to make repayments.

At that point, restructuring is often the best path forward. That might mean consolidating facilities, negotiating repayments, or working with your accountant or CFO to develop a turnaround plan.

The worst thing you can do is ignore the problem. Lenders generally prefer to support a proactive business than to chase a distressed one.

8. Put Governance and Discipline in Place

Finally, effective debt management requires discipline. That means:

  • Reviewing debt as part of your monthly financial reporting.

  • Setting internal limits for how much leverage is acceptable.

  • Linking borrowing decisions to strategic goals rather than short-term fixes.

Even if you’re a smaller business without a formal board, creating governance around debt decisions helps you avoid reactive choices and ensures accountability.

The Path Forward

When managed poorly, debt creates stress, sleepless nights, and financial risk. When managed well, it provides the fuel for growth, enables stability in cash flow, and strengthens your ability to seize opportunities.

The key lies in visibility, discipline, and strategy: knowing what debt you hold, aligning it with your business goals, and reviewing it regularly.

If you feel like debt is weighing your business down rather than working for you, it may be time to step back and reassess. Sometimes, an external perspective, whether from a virtual CFO, advisor, or your accountant, can make all the difference in turning debt from a burden into a powerful tool for growth.

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