Get your business out of debt

Debt is a Canada-wide problem that’s plaguing everyone from multinational corporations to your local “mom & pop shops”. Without the cash or credit-generating abilities of big companies, small businesses have been particularly hard-hit. Like proverbial canaries in the economy’s coalmine, they’re the first hit and often the hardest stricken.

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“It’s easy to get into debt. A few bad judgments and you can be stuck somewhere that’s very hard to get out of,” says Chartered Accountant Bill Irwin, a partner with Welch, LLP in Ottawa. “Getting a company’s debt down to an amount you can comfortably live with is essential, but it may take some years to get there.” Chartered Accountant Jason Evans is an advisor with Robinson and Company LLP in Guelph. His clients include many family-owned businesses and small- to mid-size companies. “For those who can do it, this is an ideal time to pay down debt given the heightened risk factors we are facing, “he says. “Conversely, with reduced interest rates and the cost of borrowing money lower, it could be an opportune time to make some strategic business investments with any extra funds. “Start your company’s turn-around plan by reviewing your business plan,” Jason advises. “Anything that’s a year or older should be revisited. Focus on the company’s strengths and look at undue risks to the business, too. What’s working and what’s not? “Next, take a hard look at the budget and balance sheet. How would you like them to look over the next year? Can you get there from here?” asks Jason. “With the whole picture in front of you, look to reduce costs. Don’t go for one-off fixes, but outline a process for paying down debt and plan for contingencies. Poor or incomplete planning is a plague that afflicts many small businesses,” Bill says, “and it’s one of the most important steps to do well.” Both Bill and Jason agree that a discussion with your Chartered Accountant is in order. You may also want to bring in a third party advisor on restructuring before talking to your bank “Your banker may not reduce interest rates, but will likely work with you to keep your business viable,” says Jason. The repayment terms of loans might be negotiable. Lines-of-credit or loans might be possible if you’re building new facilities or considering other business enhancements. Take this opportunity to redefine your business and what you need to focus on. Expedite collections, evaluate your customers and consider weeding out those whose payment practices are less than ideal. Analyze your inventory. Are you carrying the right stock? Are there poor sellers or lines of business that should be discontinued? Give careful consideration to your marketing plans. It’s tempting to cut expenses, but advertising could pay for itself many times over with the business it generates. Last, but by no means least, focus on people. Be open and honest with your employees, and don’t cut spending on things that contribute to a happy, productive workforce. You’ll relieve stress all around, and engage support from the team you’ll need to see you through this crunch.