Successfully manage your debt schedule with a simple corkscrew financial model

Managing business debt is one of the many responsibilities of today's CFOs. Doing this can be challenging, though, without a structured approach. 

Fortunately, the corkscrew financial model can be applied to this work to make debt schedule management – managing debt repayments, interest expenses, and cash flow forecasting – a whole lot easier. 

This article explores how the corkscrew financial model can simplify complex debt structures and help CXOs make more informed decisions about borrowing.

What is a business debt schedule? 

A business debt schedule outlines your company’s long-term debt—including loans, leases, bonds, debentures, and other long-term periodic payments. It enables CFOs and finance teams to :

• Envision the capacity of your company’s capital runway
• Analyze your company’s debt capacity
• Anticipate upcoming shortfalls that might require additional funding 

Let’s assume, for example, your company has multiple loans. The finance team might struggle to remember all repayment dates without a debt schedule. The result? Missed payments and potential penalties. 

With a business debt schedule, the finance team can see, for example, that a $100,000 loan repayment is due in Q3. Additionally, they can see how the interest payments totalling  $50,000 are spread throughout the year. This foresight allows the CFO and finance team to plan the cash flow required to meet these obligations without compromising operational expenses. 

Debt schedules play a big role in cash flow analysis, and the information they provide helps create financial statements including the cash flow statement, the P&L (income) statement, and the balance sheet. 

The interest from the debt schedule goes as an expense in the income statement. The closing debt balance goes onto the balance sheet as a liability. Lastly, the principal repayments flow through the cash flow statement under financing activities.

Why do SaaS businesses need a debt schedule?

SaaS borrowing is different from that of traditional businesses. Most SaaS companies take debt to support growth investments that would otherwise have been funded by equity (or not made at all). Keeping a debt schedule enables SaaS companies to:

1. Manage cash flows: Aligning all debt-related information in one place helps finance teams stay on top of the company’s debt repayment. 

2. Strategize payments: CFOs can identify and prioritize the most pressing liabilities—like those with high interest rates or fees.

3. Review financial planning: Modeling the debt schedule lets finance teams make strategic decisions about future investments and expenses. 

4. Maintain investor relations: Companies can leverage a debt schedule to vouch for their credibility with investors, creditors and other stakeholders to raise new funding. Investors rely on this report to assess the risk and return before approving additional credit/investment.

Using the corkscrew financial model to calculate your company's debt schedule

The corkscrew model allows consistent modeling of the debt balances. The closing balance from the previous period is used as the starting balance in the current period. 

The debt schedule corkscrew calculation allows finance teams to track changes within a given month. Rather than comparing balances from one month to the next, this model enables business leaders and finance teams to track specific movements within accounts that lead to the new balances. This level of detail helps identify factors influencing debt levels and provides insights into cash flow dynamics.

How to build a debt schedule corkscrew model

The corkscrew model is versatile and can be applied to various financial aspects of your business. Whether it's annual recurring revenue (ARR), plant, property, and equipment (PP&E), debt paydowns, debt accruals, depreciation, capital expenditures, net operating losses for tax purposes, or balance sheet accounts—the corkscrew model offers a flexible resource for comprehensive financial planning and management.

 Building a debt schedule corkscrew model typically involves four steps:

Step 1: Gather data 

Collect all necessary data, including the initial debt balance, terms of any new debt, repayment schedules, and interest rates, and enter it into a spreadsheet. 

Set up the spreadsheet with columns for each month and rows for the beginning balance, draws, paydowns, interest accruals, and the ending balance.

Pro Tip: Financial planning and analysis (FP&A) software like Drivetrain can effectively eliminate this step with integrations that can make data consolidation from disparate sources automatic and error-free. ‍

Step 2: Determine the beginning debt balance

Start with the previous month’s ending balance. This balance will roll forward to become the beginning balance for the current month.

We’ll walk through an example here of a business with a beginning debt balance in January 2024 of $150,000.

Step 3: Add draws and subtract paydowns

Add any new loans or draws from existing loans to the account balance. This step increases the debt balance and reflects any additional funding received. 

Also, subtract any debt repayments or paydowns made during the month. This reduces the debt balance and tracks payments made towards reducing the principal. Note that in our example, the minimum payment schedule is already shown. 

Step 4: Calculate the ending balance

Calculate the line items to determine the ending balance for the month using the following equation:

Notice that for March 2024, there was a draw of $5,000, which increased the debt balance to $151,000. However, this increase was offset by the $2,000 paydown resulting in an ending balance of $149,000 for the month. This ending balance for March now rolls forward to become the beginning balance for April.  

The example above could be applied to any business. However, for a SaaS business, it’s important to be aware of a couple of things that can hamper your ability to pay down you debt, causing you to deviate from your debt schedule: 

• ARR: Fluctuations in ARR directly impact a company’s debt servicing capacity. Given this, it’s a good idea to factor in a sudden increase or decrease in ARR into the debt schedule to ensure accurate forecasting of cash flow. 

• Churn rate: A high churn rate can affect your company’s revenue stability and its ability to meet debt obligations. It’s important to account for churn in the model when calculating the debt schedule. 

Accounting for these possibilities and what you will do to mitigate the risk of defaulting on your debts is something you need to factor into your comprehensive financial planning. 

Challenges of creating a debt schedule with the corkscrew model 

The corkscrew model is an excellent tool for companies to optimize their debt management and overall financial planning. However, it does have some challenges. 

• Data sanity and management: Since spreadsheets are primarily used in corkscrew financial modeling, managing and integrating data from multiple spreadsheets is time consuming and poses a serious challenge. Multiple spreadsheets are not only unwieldy but also could be inaccurate from manual entry of data—resulting in unreliable forecasts and, ultimately, poor decisions.  

• Complex debt structures: Many SaaS companies prefer to take debt to avoid equity dilution. The different types of debt they take include bank loans, bonds, venture debt, lines of credit, etc. Since each debt type has unique terms and conditions, managing them can complicate the modeling process. This requires careful tracking and analysis within the corkscrew model.

• Regulatory requirements and compliance: Different debt types have different reporting standards and practices. The regulatory requirements for whatever debt the company has taken needs to be integrated into the debt scheduling process. 

• Constant updates: The debt schedule needs to be updated regularly to reflect any changes that might have happened, including interest rate fluctuations, refinancing, or new debt issuance. 

Leverage technology to make all your financial planning and forecasting more reliable

The corkscrew model is versatile and can be applied to various financial aspects beyond debt scheduling. However, its effectiveness is only as good as the data fed into it. Accurate, timely, and clean data is essential for the model to deliver reliable insights and forecasts.

Using a financial forecasting tool can significantly enhance the corkscrew model's effectiveness and efficiency. It can accurately capture and consolidate data from different sources and reduce the risk of errors and omissions that can occur with manual data entry. 

Implementing a strategic financial software like Drivetrain not only helps you with data consolidation and informed decision-making, but also provides cutting-edge forecasting capabilities for the overall financial health and success of your company . 

‍Learn more about Drivetrain to explore the intersection of financial modeling and forecasting for insightful, data-driven financial decisions.