UWR 009 – How to get your business out of debt

Welcome to Uncover Wealth Radio Episode 9 In todays episode I am speaking about How to get your business out of debtSo let’s dive in….First off let’s address what debt actually is – debt is previous overspending – it is prior spending in your business that your revenue at that time could not support. And if you want to get out of debt, you need to find a way of your revenue supporting that now as well as supporting your current other business spending, your tax payments and your own take home pay.The first things that we need to do is make sure that our current business spending is as lean as possible to free up any available funds for debt payments.I cover off the big exercise that I do for this with client and in my own business every quarter in episode 6 of the podcast – so if you have not listened to that one I urge you to listen to it once you have listened to this episode as that is the first step.Now that you have got your business spending to as lean as possible, it’s time to work out what funds are available for debt repayment.You can do this by taking your currently monthly revenue, less your lean business expenses, less money for VAT and tax, less your take home – what is left? That would typically be your profit which you could distribute to yourself – however, due to spending habits previously, this profit now needs to be directed into debt repayment. I don’t recommend that you divert every penny of profit into debt repayment – but I do think it should be around 99% of the profit – so calculate what that is for you in £ terms.Now you need to look at all the debts you have.List them all out – every penny – everything due to suppliers, to staff, to your parents, to your grandma, to HMRC, on Credit Cards – every single penny. You can’t know how to tackle it if you don’t know exactly what you are dealing with. And I know it can be scary to see these numbers written out in black and white – but it really is important that you have a complete picture.Now I want you to note beside the debt amounts, what are the monthly minimums on each debt?And what does those monthly minimums total to be?Once you have that total compare that to the amount you have available each month for debt repayment – is the amount available more or less than the monthly minimums.We need the amount available to be more – if it’s not – then you need to go back to the lean expenses exercise and work out how it can be. You need a gap there.If you have done it again and there is still no gap – then you are going to have to negotiate with those you owe money to, to see if you can get your monthly minimums lower – but this is only a short term fix and will led to you being in debt for a very long time – this is a last resort and I do not recommend this as a solution to your current debt situation.Now if you have more for debt repayment available than your monthly minimums that is great – what we need to do now is work out which debt to pay down first.I like to use something called the debt snowball – what that systems states is that you pay down the smallest debt first (not the one with the highest interest rate – but the one with the smallest £ amount outstanding.  Use the available extra to pay that first – that might take you one month and might take you one year…but get that one paid down first, whilst still making your minimum payments on all debt.Once that one is paid down you move onto the next smallest one – and concentrate on paying that down in full…then you repeat…It might take you years to pay off all the debt…and during that time you are going to need to be as lean as you can on your business expenses – but that is not a bad habit to get into either. I hope that makes sense. I know that it can be scary and this might feel like a long drawn out process to get that debt paid down, particularly if you have a large amount of debt…but this is the way to make sure that you are getting everything you owe paid off and still making those minimum payments. I hope that this episode has been useful for understanding how to How to get your business out of debt.

Thank’s so much for listening, until next time, let’s find the clarity in your numbers, increase your wealth and get more money in your pockets.


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Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.