Every individual, family, business, governing body, or organization with a cash flow and expenses needs to find some way to keep track of those expenses in order to make payments on time and not accrue too many penalties. Even the simplest entity, such as an individual living alone in an apartment with a small stack of bills, probably has something akin to a debt schedule. Even if you only circle the due dates on your bills in red ink and stack them according to their due dates, even that is a kind of debt schedule. Entrepreneurs and small business owners typically keep track of debts using a business debt schedule.
What is a Business Debt Schedule?
A business debt schedule is a more complex form of our example with the stack of bills piled up with the earliest due dates on top. It is a detailed list of debts that a company has accumulated. These debts may include, but are not limited to:
• Notes Payable
• Other periodic payables
Typically, a business debt schedule will only include long-term debts as opposed to smaller regular expenses incurred on a daily basis. For example, the coffee room supplies probably won’t find a place on a business debt schedule- but scheduled payments for a lease on the office building and various capital expense loans will.
What Information Should you Include on a Business Debt Schedule?
There’s good reason why accounting is an entire industry all its own. Maintaining a debt schedule is key to avoiding triggering late payment fees, for tax reporting purposes, to keep track of profit margins, to measure the success of various business processes and much more.
A business debt schedule will contain the details of creditors and lenders that the company is working with. It will maintain an updated current balance sheet. Original debt amounts and interest rate equations will be tracked and noted in detail. Each debt tracked will include monthly payment amounts, due dates, maturity dates and collateral in cases where these are applicable.
A well-organized debt schedule is useful for obtaining a rapid assessment of a company’s financial position. This makes a business debt schedule an important tool to use any time a company wants to negotiate with partners or creditors. The best debt schedules will contain sections with a complete, detailed description of each credit account as well as quick reference sections, ideally, based on the detailed section.
The quick reference section may include graphs and other visual representations of dynamic financial data. These enable decision-makers to make quick determinations about important business issues when time is of the essence. For example, a prospective partner may have a small window during which they can leave an offer open. Executives will need to make a quick decision about whether or not to go ahead with the deal on the table.
Here’s an example of what your business debt schedule should look like.
The Benefits of a Business Debt Schedule
If you’re the proprietor of a growing small business, there’s a chance that you have been tracking your income and expenses in the basic way described above. If your debts and lines of credit are few, you may not see a need to create a business debt schedule. However, as your business grows, so will the complexity of your accounts, expenses, and debts. Getting into the habit of keeping a business debt schedule now will be a great help later on when your finances are much more complex than they are now.
There may come a period of time when your financial situation is sufficiently complex to warrant the creation of a debt schedule- but there isn’t room in the budget to onboard a professional accountant or outsource your accounting processes. As your debt profile gains in size and complexity, it will become harder to manage. Easing that complexity is just one of the benefits of creating a debt schedule.
The most effective way to curtail unnecessary spending is to keep track of it. Needless costs that are not marked down will be quickly forgotten, but an itemized list of purchases is a good way to keep yourself, your partners, and employees accountable. When tracking purchases becomes part of your internal culture- purchases that are not documented will rarely escape notice.
Never Miss a Payment
Missing payments on credit accounts and loans is a major source of lost income for individuals, companies, and any other entity with a financial component. Collecting debt through missed payments is an important part of what makes the lending industry so immensely profitable. By keeping track of your debts, you can avoid the pitfalls that lead to late payments.
More Accurate Forecasting
By creating a debt schedule, you will obtain an accurate and ongoing account of your cash flow profile. With informative quick reference material, and a clear understanding of what your finances will look like in two weeks, two months, next year- and so on- you will be better able to make decisions about new investments.
Track Your Financial Health
As you become accustomed to keeping a debt schedule, you will develop a concrete cross-section of your organization’s financial health. This makes it easier to see which marketing campaigns and business processes are working, and which aren’t- enabling you to make effective business decisions.
Determine Your Company’s Readiness to Take on More Debt
If your organization is in need of an infusion of cash to obtain capital for growth, taking on more debt might be the only way to obtain it. Moving forward, uncertain whether or not you can sustain the extra debt is not a good situation to be in. Your debt schedule will tell you what your current financial status is, as well as what it will be in the foreseeable future. That will give you a clear idea whether or not you can sustain additional debt.
Provide Information to Potential Lenders
One of the first things lenders want to see from a prospective client is clear and accurate information on their financial status. If you walk into a lender’s office with a clear picture of how much money is coming in, how much is going out, as well as the sources and destinations of these revenue streams- you will have a much better chance of being approved for a loan.
Finally, few people or organizations walk away from an encounter with the IRS without losing some money. By keeping a thoroughly detailed debt schedule, you can help ensure that the IRS will be satisfied with your reporting- making the chances of being hit with an audit much smaller than they would be otherwise.