How Can Small Businesses Wipe Out Debt In The COVID-19 Era?

Monday, 6 September 2021, 6:31 am
Press Release: Kalkine

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

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