In the red? Practical tips to manage debt

Many small businesses depend on borrowed money to keep on track or to fund growth. But if your debts are becoming too much of a burden, check out these tips to ease your cash flow woes in the run-up to Sorted Money Week.

Money worries are high on the list of things that keep small business owners and self-employed people awake at night. There might be too little coming in or too much going out.

But debt needn’t be bad for you and your business. This year’s Sorted Money Week, running from 14-20 August, tackles how to use debt to improve your well-being — and your business. Events and activities will be held across New Zealand. To see what’s happening near you, go to

The aim is to help people take the true cost of borrowing into account — and pick up tips on the quickest way out of debt.

“Debt is like fire,” says Tom Hartmann, personal finance editor at the Commission for Financial Capability. “It can do great things for us, but we can get burned in the process. The key is to see if it’s increasing our well-being or not.”

Before taking on debt, think about the impact on your business and on your well-being - positive and negative.

Before taking on debt, think about the impact on your business and on your well-being - positive and negative.

Case study

Fixing cash leaks

Richie runs a home maintenance and repair business. After three years of struggling with cash flow, Richie begins to burn out. He’s working harder than ever, but his efforts aren’t translating into profits — and he doesn’t know why.

Richie decides to consult with an accountant, who closely analyses his financial statements.

His accountant notices many of his customers aren’t paying him on time, and he’s using several high-interest credit cards for a lot of his expenses.

She helps him set up better invoicing methods, consolidates his debt, and moves him to a lower-interest credit card. She also works with him to put together guidelines on when, and when not to, use the credit card for work expenses. And she coaches him on how he can manage his money better in the future.

Tips on getting paid on time

If money is stressing you out

Get advice

A problem shared can help you find the best way forward. An accountant or bookkeeper can help you avoid common mistakes and set up good systems, including getting customers to pay on time. A budgeting advisor can help you cut costs and slow debt growth.

It’s particularly important to get advice when you are:

  • starting out
  • having trouble paying your bills
  • looking to grow
  • closing or selling your business
  • getting ready to seek investment
  • considering large bank loans
  • dealing with tricky tax issues.

Pick up business finance basics

Business finance is about knowing what’s coming in and going out. It helps you make smart decisions about spending your money — and make sure you earn enough.

By staying on top of your finances you can:

  • understand how your business is performing
  • make informed decisions about spending
  • make sure you have enough money to pay the people you need to, when you need to
  • see when you are owed money
  • stay on top of tax payments
  • set key business milestones.

Weigh your options

Many small businesses have borrowed money at one time or another, but that doesn’t mean it’s always the right decision.

Generally speaking, taking out a loan is reasonable if you:

  • need the money to grow, rather than as a bailout
  • are confident you can make repayments on time, every time
  • are likely to pay it off early, reducing the amount of interest owed
  • understand all the terms and conditions.

Use an online tool to model repayments for different terms and interest rates — try the debt calculator on the Sorted website.

Debt calculator (external link) — Sorted

Then factor loan repayments into your cash flow forecast. Is it worth taking on debt?

Be wary of offers of fast or unsecured financing.

Be wary of offers of fast or unsecured financing.

These loans could be easier to get, but tend to come with higher interest rates.

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