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Will more debt help our clients?

With years of experience in the industry, Kirsty McGregor sparks the debate of whether debt is necessary for SMEs moving forward. 

Kirsty McGregor Aug 19, 2020

Having worked with SMEs and owner-managed businesses for over 25 years, I’ve definitely seen differing approaches to having debt in a business. And whilst the availability of funding across different lenders and new products has hugely increased, I can’t say the attitude of business owners has changed much over all those years. Some want support from external lenders for their companies and some vehemently don’t, and struggle on without it.  

Larger SMEs, or businesses who are smaller but growing, run by directors who I’d consider to be savvy and with a good head for strategy, usually have some working capital debt facilities within their business in the vast majority of cases. And, if they’ve previously undertaken a large purchase for property, tangible assets, or goodwill and other intangible assets such as acquiring another company, they will also have some form of structured debt on their balance sheet too.

Whereas many smaller SMEs or micro-businesses believe that a debt-free business is a successful business.

So who is correct?

I think it depends upon the goals of the business owner and the function of the business in their life. Let's break it down.


1. Owning a business with a goal to maintain lifestyle

If a business is purely a lifestyle company, satisfied by making minimal profits and withdrawing all of those for the benefits of their owners and staff every year, then they will usually remain fairly small by their very nature.  The business is often an extension of their personal wealth and financial position, including their banking.  

Therefore, as much as private individuals as consumers consider debt to be a burden, so do these entrepreneurs, and are likely to remain permanent non-borrowers.  Any business decision is treated as a personal decision because they believe it may impact upon the security of their own family’s home.  This is often the viewpoint if profitability is unstable from year to year, and therefore they risk not being able to ‘take home’ as much in earnings themselves if they are servicing this third-party debt, or if the business ultimately cannot repay it and they have provided personal guarantees to the lender.

The many hundreds of thousands of new businesses, formed in recent years by a new generation of entrepreneurial business owners, will choose to remain at this ‘micro’ level of business.  

They may have chosen the route of creating their own job to give them work flexibility and more control over their working life, by setting up in business rather than working for another person as an employee, but they don’t have the risk appetite to grow that business into a larger corporate entity, beyond maybe a couple of other employees or freelancers.


2. Owning a business to gain more wealth

However, many of the older businesses, set up in the last century by Gen X and the ‘babyboomer’ generation, have now created larger SMEs and tend to employ more staff. Their aim has been to grow their businesses, to create a more secure asset base and, once the riskier times have passed, provide them with a more stable flow of personal earnings.  These larger owner-managed businesses have formed teams, boards of directors, and have a more corporate mindset to growth. Which came first, the attitude or the growth? Without doubt, the vast majority could not have achieved this growth without the support of some working capital facilities, whether overdrafts, invoice finance or other asset based lending.

They have used that additional capitalisation in their balance sheets to be able to make investment decisions without being so hamstrung by the availability of cash.  The decisions they have made to diversify into another market or product range, to acquire more equipment, larger premises or to increase their production capacity by recruiting more staff, have been debated and decided upon based upon the various merits of the business argument, the risk and return considerations, and not merely by a binary decision about whether the funds were there to finance this potential growth. 

By having less pressured access to a line of cashflow, they have removed one of the barriers to their business’ development. The cost of servicing that debt is simply included in the calculations for their intended profit margin and is part of the decision they make to pursue this new avenue or not. ie: will their projected growth result in adding profitability to the ‘bottom line’.  If access to this finance is not already in place, and is not available to the business, then the decision becomes much harder.  

If used for its main purpose, having working capital facilities assists a business to grow. It is a positive thing for a business, not a negative.



Due to the pandemic, most businesses are now in the position of having very low cash reserves and access to internal funds are likely to be much more restricted than pre-Covid. If they want to grow again, they will need access to working capital. The natural working capital cycles between debtors and creditors have been thrown off course and, compounding that, many businesses have made a loss over the national lockdown period, or anticipate that lower profits will be made this year due to the continued social distancing requirements and potential for other further local lockdowns.



Since our role as SME accountants has predominantly changed from auditors to advisers over the past few decades, do you consider it part of your remit to assist your clients to grow? To coach them in having better business skills and to secure a more stable business?  You may or may not choose to be that type of accountant. You may or may not choose to have a client base of growing businesses. But if you do choose this, you need to be having these conversations with your clients – and soon!

The announcement to extend the CBILS approvals deadline  to 30th November is incredibly welcome as it potentially gives us a few  more weeks to have these conversations with our clients, and make the application by 30th September, leaving the lender to consider it into October and November, if necessary. This enables accountants to create cashflow and growth forecasts for their clients, if they haven’t already, to be sure that they consider whether they need to take advantage of this incredibly generous government-backed loan scheme whilst it is still here, and to be confident that we will #LeaveNoBusinessBehind.


Watch the campaign launch video to gain more of an understanding of how you can get involved. Sign up to make your pledge and get access to a free resource hub. 

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