(Money Matters) How to put a debt schedule together - Kasfia Rashid

Kasfia Rashid - “Money Matters with Kash the Bookkeeper”

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Introduction: 
Hello! Welcome to Money Matters- Ask the bookkeeper series, the accounting show answering burning accounting questions! You know, the ones you would only ask your best bookkeeping buddy! 

Each show will have one main question from the audience with supporting questions from my various travels. Have a question to ask? Don’t be shy, step right on up! You can submit your questions directly to Hello@kashthebookkeeper.com! You may hear your question aired live across the globe! 

Last week we discussed how to build business credit correctly. This week we continue answering liability related questions with “How do I put a debt schedule together?” This  may be the first time you have heard the term “Debt schedule”, as it is not used often in business conversations. Similarly to an “Asset schedule” (which we discussed in our depreciation episode), a “Debt schedule” lists out a business’s liabilities in order of maturity date. 

Need a refresher on what a liability is? Check out Seasons’ 3 show here : https://pod.co/money-matters-with-kash-the-bookkeeper/1-money-matters-liabilities-the-untold-story-of-debt-kasfia-rashid

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Show Objectives - The Why
Before we can create a debt schedule for our business, we need to understand what it is and how to construct it. Simply put : “A business debt schedule is a table that lists your debts—such as leases, loans and contracts—according to order of maturity.” That’s it. Nothing too scary, right? Maintaining a debt schedule allows you to make more informed decisions about how to plan for and execute business growth, payment strategies and handle any other unexpected costs. You can think of it as a miniature budget! 

There are several benefits of creating and maintaining a debt schedule:

Eliminating missed/ late payments. 
Missing or late payments can have disastrous results on your business’ credibility, not to mention the FEES associated with them. One of the most essential components of a debt schedule is having all of the due dates in one place! Can you feel the peace of mind that comes with?

Create a Payment Strategy
Knowing exactly when bills are due and when gives you the time to properly evaluate cash flow creating long lasting money habits. 

Refinance Your Rates
If you are looking to refinance loans providing a debt schedule is usually required. 

Build More Accurate Forecasts
Since a debt schedule is a mini budget, creating larger budgets becomes faster and easier. 

Make Better Borrowing Decisions
Business needs can quickly change. When you need to make a fast, well-educated decision on whether or not you can take on more debt through a cash flow loan or a line of credit, a business debt schedule can make your life a lot easier.

These straightforward schedules make it easy to keep tabs on your business’s debts.  Let’s dig a little deeper into what is a debt schedule, how they function and how to make your own debt schedule.

What You Need to Know - The What
What Is a Business Debt Schedule?
A debt schedule is a list of everyone that a business owes money, goods, or services to, how much is owed, when it should be paid and how much.

A business debt schedule can be created for any of the following categories:

• Leases
• Loans
• Contracts
• Accounts payable
• Other periodic payables

While very common, business expenses such as short-term accounts payable and accumulated liabilities are not typically listed in a schedule for external purposes, it should be included for internal forecasting purposes.

Having a firm grasp on the details of your payment schedules and interest rates is important. A business debt schedule allows you to gather and review your company’s debts easily so you can accurately and effectively plan for repayments. They can even help you understand if your company can take on an additional small business loan.

Another benefit to using a debt schedule is how it can help you to analyze your cash flow. This is possible because the schedule connects 3 essential financial documents:

• The income statement
• The balance sheet
• The cash flow statement

Interest expenses listed in the debt schedule are tied into your income statement, while the balance sheet includes the same closing debt balance. The 3rd tie-in comes from the principal repayments which influence the cash flow statement. The debt schedule is one of the supporting schedules that ties together the three financial statements.



What You Need to Do​​ - The How
How to Make a Business Debt Schedule

As you build your business debt schedule, there are a few essential categories you will need to include. Adding the details of each debt gives a fuller picture of the commitments in your business allowing you to plan more efficiently.

1. The creditor or lender
2. Original date
3. Original amount
4. Current balance
5. Interest rate
6. Monthly payment
7. Maturity date (due date)
8. Collateral posted

IF this schedule is used almost exclusively for internal purposes, feel free to include notes about each debt, their function and any other information that you’d like to keep close by.

Factors to Consider in the Construction of a Debt Schedule
Before committing to borrow money, a company needs to carefully consider its ability to repay debt and the real cost of the debt. Here is a list of the factors a company needs to consider:

1. Debt maturity – Most debt is amortized and paid monthly. The longer the maturity of the debt, the lower the amount due monthly, yet the higher the total sum of the debt and interest accrued.
2. Interest rate – The lower the interest rate, the better, but not always. A low interest rate for a long-term debt usually results in higher total interest due than short-term debt with a high interest rate.
3. Floating or fixed interest – A floating interest rate will change the overall debt service payment amount each year, while a fixed interest rate provides reliability in the calculation. Depending on the future assumptions, a floating interest rate is the better choice in a low or declining interest rate environment.
4. Ability to generate gain – There is no reason to take on new debt if the debtor cannot use the funds to generate a steady stream of income to pay the debt off. Failure to pay a debt might result in a drop in their credit rating or even forced liquidation.

Articles :

1. https://corporatefinanceinstitute.com/resources/knowledge/modeling/debt-schedule/ 
2. https://www.fastcapital360.com/blog/business-debt-schedule/ 
3. https://exitpromise.com/business-debt-schedule/ 

Additional Resources 

1. Check out Kash’s Youtube Playlist: Bookkeeping basics for small business owners. 
2. Want to learn how to use QuickBooks? Click here for three free videos! 
3. Want more KASH? Sign up for the free newsletter! 

Shows: 
Previous: How do I build business credit? 
Next:  How do I pay myself?

​Written by Kash the bookkeeper  
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