3/374 Pennant Hills Road, Pennant Hills NSW 2120
Call Us Today:
(02) 9980 5892

Learn How To Navigate Your Business Being In Debt With These Simple Steps

Money is the lifeblood of business, and ensuring optimal cashflow keeps its heart beating and makes for smoother operations and its continuation.

Sometimes, however, a business accrues debt during its operations. This could be due to a loan, start-up costs, inventory and stocking costs, or even invoices not being paid for services rendered.

There are two kinds of debt that businesses can go into – good debt and bad debt. You might be asking, how can a debt be good? Determining the type of debt is highly dependent on how the debt has been used for your business.

Good debt has the potential to support your business’s growth and its ability to create and generate further wealth. This could be when your business purchases an asset through borrowed money that generates income for the business, with the return on investment for the asset exceeding its after-tax interest cost. If you are a business in a seasonal industry, you could use a business loan or line of credit to balance out uneven cash flow in the slower seasons.

As a general rule, good debt generates more value or money than the loan itself costs. It allows you to expand by financing things for the business, such as equipment, premises, skilled employees and marketing.

Bad debt may come in two forms. The first is a loss that your business has incurred because credit has been extended to customers that cannot be repaid or recovered (which should be expensed on your income account). It could also be a loan that your business takes out to finance things, such as growth or day-to-day operations.

Bad debt essentially affects the bottom line, disrupts the day-to-day activities and operations by affecting cash flow, constrain growth and even threaten the survival of your business.

However, even good debt can become bad debt if it is not carefully managed and controlled. Always have a plan for paying off debt in place, and try to pay off the more expensive forms of good debt before the cheaper good debt.

Suppose it feels like you are waiting with bated breath for the creditors to knock on your business’s door due to unmanageable debt. In that case, you may want to consider the following:

  • Conduct as much research into businesses you are entering into agreements with to determine the business’s legitimacy and that they are solvent (able to pay)
  • Get advice from professionals, such as restructuring, business turnaround and insolvency experts as a matter of urgency. The sooner you contact them, the sooner you can put into place your options and potentially avoid closure.
  • Work with creditors to reach new repayment arrangements.
  • Consider restructuring and turnaround measures to give your business a lifeline, assist in the repayment of debts, and continue operations.
  • Voluntary administration, receivership and liquidation are last-resort measures that result in shutting down your business and, less commonly, turning your business around.

If you require assistance with planning your business’s debt management solution, you should seek professional advice. Consult with us on how your debt can become manageable today.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.


What our Client Say

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier

David and Alison Parker

I have been consulting J L Noller and Co. (more specifically Jane) for six years and during this time I have found her to be professional, efficient and easy to discuss all accounting and taxation matters with. Her office team are all polite and friendly also.

David and Alison Parker

Business Owner

Carl Gillmore

I have used Jane & the team for the last 6 years for all of my business & personal accounting needs. They have always been professional, easy to talk to & available when we have needed assistance.

Carl Gillmore

Carl Gillmore Landscape

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier