In a previous post, I talked a bit about how debt can creep up on you when you’re not watching out for it. Now, I’m going to get a little more granular about my experiences with debt and how, sometimes, the reasons for your debt are completely out of your hands.
Your business is like a living organism
Cashflow is the lifeblood of the business. It’s the blood running through the business’s veins that helps deliver supplies to all parts of its body. Debt can be like a cancer – eating into the health of your cashflow. In keeping with this analogy, you’ll be completely oblivious to what is going on under the hood.
Depending on how your business is set up, cashflow can be incredibly tight – and the minute you add debt to the mix, things can quickly become unpredictable. Cashflow is king, yes, but debt can be a nasty cancer on your business. And, unfortunately, we know how that can sometimes end.
A lack of understanding
I’ve been guilty in the past of not fully understanding the numbers. When you’re managing tens and hundreds and thousands of pounds in business transactions and the smoke and mirrors that can be cashflow, things can go unnoticed.
Back to what I was saying a little earlier, there will be times when there are big numbers in your account and it feels like the business is in a healthy state so you can spend. This. Is. An. Illusion! Positive cashflow can be temporary and can give you a false sense of security. I’ve been blinkered by this in the past. Confidence is good, as long as it’s balanced with some reality-based sensibilities.
This has probably been our biggest Achilles heel. I’m going back a few years now, but in the past we’ve had several difficult conversations with HMRC. I’m not going to lie, it was a butt-clenching time on a few occasions. However, I’ve lived with the stress and worked extremely hard to make sure we pay every single penny we owe and become debt-free as soon as humanly possible.
It’s a horrible place to be – I don’t like owing people money. However, pride is at play on this one. You could easily shut up shop, walk away from the debt and start again, and many people do that. I’m not a huge fan of that at all – I’d rather dig in, pay back what is owed and move on, grow and prosper from that. None of us like taxes, but it’s the harsh reality of what we have to do for the economy.
Your bank and the unforeseeable
We were banking with RBS (Royal Bank of Scotland). They were our business bank for several years until one day, I received a 60-day closure notice. I was in utter shock.
The account was in good shape and they’d only just agreed to extend our overdraft facility for another 12 months. Two weeks later, I received the notice. This was a disaster! Not only were we going to lose the credit facilities that we have, but we were having to pay it all back sooner than expected. What was I supposed to do?
Expect the unexpected
I spent ages trying to get details from someone at the bank about why they wanted to close our account down. What had we done? But there was no answer. The awful thing is, they can close you down with no explanation at all. And that’s exactly what happened here. You can have an account that’s in the best possible shape, and they can pull the plug on you at any time.
So, after scrambling around for a while (and believe me, it was a real panic), heading towards Christmas time, I found a new bank account with Lloyds and they’ve been amazing. However, at first, it was a logistical nightmare to switch over. We had clients paying into the old account for a while, which we then had to chase. It took an age to get the money back, because the client then had to send letters to RBS will all the information on them. Thankfully, we eventually got it back.
Top tip: Get two business accounts
We now have a plan to repay the debt to RBS. They’ve been understanding about what we owe them, and I think COVID has probably helped with that.
My advice would be to have two business accounts with two different banks running parallel, just in case one pulls the plug on you – and believe me, it can happen to any business.
That money is not yours!
It doesn’t matter how you look at it: at the end of the day, you owe that money. It’s not yours. Debt is a subject that’s often frowned upon, but sometimes you’ve got to do what you’ve got to do to survive – as long as your intentions are good. I don’t condone dishonesty or sneaking around one bit, but for the honest ones in business, a little bit of debt to keep the business ticking over is fine.
COVID bounceback loan
More recently – and I don’t mind sharing this – we took a bounceback loan as part of the government’s COVID scheme. Luckily, it’s cheap debt, but it’ll still have to be paid back. The loan has come in very handy, certainly during the very early stages of COVID. Luckily, we’ve grown more than we’ve ever grown before during COVID and we plan to be paying that loan back quicker than planned.
Like most businesses, we’ve had our fair share of dealing with debt – of spending beyond our means and creating the creep-up of debt for ourselves. We’ve paid the price for growing too quickly at times, and lots of lessons have been learned along the way.
New processes and the current balance sheet
Right now, we’re adding new processes and systems for dealing with cashflow, profit and loss and improving the balance sheet – which, being open and honest, doesn’t look fantastic at the minute!
However, when you actually look at what’s happening in the business, the signs of growth are really good. We’re earning more revenue than we’ve ever earned before, which means we’ve got some wiggle room in our cashflow to be able to really make a dent on the things we need to make a dent on. Then, we can take the business to that next level.
Responsibility and accountability
There is a responsibility and accountability when it comes to dealing with debt. Debt is not necessarily a bad thing, alright? We all look at it as an evil necessity to keep the business going, but it’s just about respecting it, keeping it under control and not burying your head in the sand. Your arse will still be in the air if you bury your head in the sand, and it will come along with its massive boot and it will – well, I’ll let you finish that scenario off in your own heads.
- Debt can be useful – it can save your business! However, it can also be a cancer and will kill your business in the end if it’s not managed properly. It’s a fact.
- You shouldn’t be ashamed of debt as long as your intentions are honest and you are able to pay it back.
- Debt can creep up on you from many different angles and you won’t always be prepared for it.
- Debt can be incredibly stressful and can get out of control.
- The main one for me: respect debt! Don’t play with it.