‘Debt’ is an evil word in the business vocabulary and can kill your business in a heartbeat.

Most businesses accumulate debt at some stage. I absolutely have lots of experience in dealing with business debt – so I thought it would be a good idea to write a blog post on it.

This ‘experience’ includes ignoring it – burying my head in the sand and hoping it goes away. Not a smart move on my part – just plain stupid, to be frank. But, hey! I’m sure there’s people reading this right now who’ve been in similar positions – if you don’t look at it, it’s not there (or so we tell ourselves).

It’s true: business debt can creep up on you from all kinds of angles if you don’t keep on top of it. This is a lesson I’ve learned a lot over the years. There’s also the compounding effect of debt made even worse if you don’t reduce the debt in a timely manner, especially if you’re struggling with cashflow or going through difficult periods within the business.


Types of business debt

The minute you start employing people, and the minute you start registering for VAT, there’s a whole new type of debt that can create sleepless nights in the form of PAYE, National Insurance and VAT bills. This is the deadliest kind of debt: debt that is ruthless in its quest to be no longer a debt on your balance sheet.

You do not want to mess with HMRC – and, let’s be honest, most of us have had a run-in at some point with HMRC. Not because we want to, or we’ve set out to, but just because of circumstances. To be fair to HMRC, they can be incredibly sympathetic as long as you talk to them and don’t bury your head in the sand.

Then there’s other types of business debt, such as overdrafts, bank loans, credit cards, loans from family and friends (it’s debt all the same), purchase hires, cost of sales, supplier invoices and so on and so forth. It can come at you from so many different angles.


Spending beyond your means

Then, there’s spending beyond your means. Let’s be honest, we’ve all been here: we’ve set up a new business and we’ve got to that moment where the client’s paid a big, juicy amount. It’s sat in the account staring at you in the face crying out, ‘Spend me. Come on, spend me.’ Your forward-thinking entrepreneurial brain is getting a little bit carried away – there are so many cool things that I could spend this money on.

I’m not talking about boats and holidays, I’m talking about things to grow your business – and at that time, you’re oblivious to what’s actually happening in your rear view mirror. Debt is coming! And it’s gonna need some of that money. There are other, more important, high priority things you need to pay for with that cash, but you ignore that anyway and spend away. This leads to all sorts of difficulties.


Change in growth strategy

I’ve been guilty of this over the years myself – putting myself in a very vulnerable position with my growth strategy. Basically, I was focused on reinvesting back into the business and growing very close to – and often over – the profit line. It meant I was all in on growing the business and having disposable cash in the bank was the last thing on my mind.

It’s a very offensive and risky way of growing a business. One bad month, in which we may have lost a client or received a big bill, could have landed us in deep water. And, to be honest, it did bite us in the butt on a few occasions.

Now, in the early years, I was all about building infrastructure and setting the foundations for growth and future profitability. It meant that we hit a tough spot – we were quickly in trouble because of that strategy. Debt had caught up with us, and growth slowed down while we spent time and effort managing that debt. It was a massive learning curve and, being completely honest and transparent, we’re still coming out the end of it.


Gaping hole in the business

The main cause of our debt issues was a major client who owed us £70,000. Unfortunately they went under, still owing us that amount, and we had a massive hole to fill in the business. Again, because I was growing the business very close to the bone meant that we didn’t have significant cash in the bank to deal with these kinds of situations. Therefore, this led to some difficult times ahead from that moment.


Keep the faith

We’ve had most types of debt in the business: loans, overdrafts, hire purchase, credit cards and loans from family and loved ones. Desperate times call for desperate measures – we needed to get beyond the difficult bits, because I still 100% believed in the company. I just knew we would come out the other end a much, much stronger business.


Business debt can be… good?

Even though debt feels like an evil word and a taboo subject, debt can be good. Sometimes, that debt can get you over a certain line and you’ll come out the other end and prosper.

When I look at my business at the minute, there’s one side of the business in incredibly good shape – lots of sales coming in and momentum’s building. Then, there’s another part of the business where there’s money to be paid and there’s a little bit of debt that’s accumulated over previous years. It’s all very manageable now, by the way – we’ve done a really good job of getting on top of that.


Pay people what you owe

It is soul-destroying having to borrow money, especially from loved ones and family when you have to go with your begging bowl and cap in hand. However, I’m so grateful that they’ve trusted in me, my vision and my confidence in the business – and I always pay back. With interest. Eventually! You need people who are very understanding, but be honest and pay people back as soon as you can.

The plan is to become completely debt-free by 2022. This is unusual – most businesses have debt on the balance sheet. A lot of that is to do with HMRC, which is unfortunate, but it’s just the way it is.

Thank you for reading this chapter of the Diary of an Entrepreneur. I must stress, I’m not trying to teach you anything. I’m just sharing my journey, and if it motivates you, then great – job done!

If you want to hear more about my entrepreneurial journey, check out the Diary of an Entrepreneur podcast on all available platforms – I talk all things business in terms of my OWN journey and experience. It’s not one to miss!

If you’d like to chat more business, feel free to get in touch with me here or you can email me directly at