Among the worst affected by the COVID-19 crisis have been small business owners who continue to battle deepening losses
alongside a rising debt burden. The slower economic activity prompted local business owners to turn to government
subsidies and grants to pay their bills or even declare bankruptcy amid accumulating costs. However, small business
owners can avoid the bankruptcy route simply by managing their debt even with a limited revenue stream.
SMEs are crucial moving parts in an economy that generate jobs for a large percentage of the population, besides
providing consumer-friendly products and services. The strength of SMEs lies in their strong adaptability to changing
economic scenarios. However, the pandemic has tested the endurance of even some of the world’s largest corporations, let
alone small enterprises.
As alert levels increase across NZ, tightening walls of declining profits and piling debt have left businesses with
little elbow room in their balance sheets. To navigate through such unprecedented circumstances, a few essential steps
to manage debt can help small businesses go a long way. Let us quickly take a look at some of these imperative steps
below:Address costs as per priority
Planning out the business requirements within a given budget is always the initial step while formulating a financial
strategy. To begin with, businesses can chart out the potential costs and rank them based on how close they are to the
current date. Business owners can give preference to the costs that must be met earlier than others and actively seek a
source of payment.
Additionally, costs that can be avoided in strenuous times can be completely removed from the company ledger. In other
words, priority should be given to expenses that are essential for the sustenance of the business. Businesses can also
ponder on selling unused equipment or remaining inventory to find additional cash in times of limited revenue.
Moreover, using a credit card for carrying out expenses might not be a great idea during phases of the downturn.
Instead, carrying cash can help businesses limit the overall expense to a single transaction and provide an accurate
view on the amount of money being spent.Stick to the basics
An important aspect often being overlooked by many businesses is revisiting the initial budget and goals they set in the
beginning. Due to changing circumstances, businesses are compelled to improvise and find out-of-the-box solutions that
may not always adhere to their original set of priorities.
Under stressful times, businesses can jump back to basics while re-evaluating their budget in such a way that the
initial set of priorities are not lost, and their budget does not exceed its limit. This may help businesses survive a
situation with limited income sources. Establishing a budget includes identifying different sources of income, setting
timelines, and accounting for all types of expenses like rent, electricity bills, etc.
Revisiting the budget also plays a crucial role in times of increasing consumer activity. This can help businesses
ensure their daily records do not reflect costs that overflow revenue, preventing the occurrence of a scenario to
refinance through debt.
GOOD READ: What are the main sources of business risks that companies should plan for?Stack your loans
A frequently used technique in budgeting, stacking of loans, refers to consolidating the loans into one single payment
such that overall costs remain limited. Such a stack of loans can then be financed through one long-term loan.
Businesses can stack up several small, short-term loans in such a way that one large payment each week covers up the
individual loan payments. Since an additional loan is being taken for the long-term, stacking of debt allows businesses
to finance the ongoing business with debt.
However, businesses that cannot take out another loan for refinancing can stack loans based on their interest payments.
This includes giving priority to loans with higher interest rates over loans with lesser interest rates.
The next step can be outlining a minimum payment each month that can be spent towards these repayments. As loans are
covered over a span of time with the same monthly repayment amount, the time covered to repay each successive loan would
decline.Avail government support
Unprecedented events such as the pandemic require equally exceptional relief measures to keep things in place.
Government relief during COVID-19 has been the saving grace for both consumers and firms. In a bid to support local
SMEs, the New Zealand government has rolled out some SME-specific grants and subsidies to help these businesses stay
afloat.
Some prominent measures introduced by the government include the Resurgence Support Payment, the Leave Support Scheme,
the Small Business Cashflow Scheme, and the Wage Subsidy Scheme. All these measures are centred around SMEs and help
them by providing a one-off payment that covers fixed costs, employee wages and wages for self-employed individuals.
Businesses can utilise these exceptional schemes to cope with pandemic-induced slump and continue their operations
smoothly. Moreover, any additional aid from the government can provide small businesses with extra legroom to cover
their debt commitments and remain afloat.
All in all, managing debt is an essential part of running a successful business. Unfortunately, businesses may find
themselves stuck in an endless spiral of debt repayments even with high revenues. However, streamlining the repayment
structure can help businesses weather storms like the pandemic seamlessly.
----------------------------------------------------------------------------- An exclusive
article by Mr. Kunal Sawhney , CEO , Kalkine Group