Is debt a cost of business?

By Jeff Bowman

Those of us who run our own businesses are acutely aware of the costs incurred in running that business and where we could cut down or eliminate expense if need be.

Smart business people manage these costs and make timely decisions  to minimize the impact on customers, particularly in a competitive marketplace.

Lines of credit and incurred debt are often part of the equation, as suppliers need to be paid, in some instances before customers remit payments.  The government certainly does not wait for its share, exacting a penalty if remittances are not on time.  The question arises as to how much debt you accumulate or how far you stretch the lines of credit before you are forced to close or sell the business. This is a critical decision that should involve your accountant.

It is this very thinking that got me a little perturbed when I really got down to reading the various charges on my Hydro bills in Ontario, part of every business expense. Transportation charges for the delivery of hydro. A regulatory charge, an adjusted usage fee for power lost over the transmission lines and finally a Debt Retirement Charge imposed by the Electricity Act of 1998, which pays down the debt of the former Ontario Hydro. Both business owners and consumers have been paying down the Hydro debt now for more than 12 years. Do you really think that this charge will disappear when that debt is finally paid off?  With the billions of dollars given to other sectors in bailouts during the last year, would it have made sense to pay off this debt and clear the slate so no more interest would accrue, and business owners and consumers would save this cost each month?

Wouldn’t it be great if all the small business owners, who have lost their businesses over the last ten years and incurred debt in the process, could charge their new employer a debt retirement charge on top of their salary, or bill a client a small amount each month to repay previous losses.

Alas, it doesn’t happen that way. Business owners need to be a lot savvier than governments.

According to Industry Canada statistics from 2008, businesses that have 10 employees or less account for more than 75% of all businesses. That is a huge, powerful number.

I am all in favour of turning out lights, running power-hungry appliances during off hours and changing over to efficiency light bulbs, furnaces etc.

While we as business owners do our part to manage our debt load, and pay off expenses, the economy is picking up and consumers are starting to buy.  It won’t be long before a small degree of prosperity returns, which will be great for those of us who weathered the storm, but a little late for those whose debt load crippled their businesses.

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