How to build and manage a debt schedule for your SaaS business

If you’re a Marvel fan, you know Tony Stark relied on his AI assistant – “Just a Rather Very Intelligent System” or JARVIS for short – to monitor his Iron Man suit’s power levels in real time. Without JARVIS, Tony would have literally been flying blind into dangerous situations. 

Similarly, modern SaaS leaders need clear, real-time visibility into their company’s debt situation as that can be pretty dangerous, too, if not managed properly. Not having a clear understanding of debt can leave them exposed to costly risks as well as missed opportunities. 

A well-structured debt schedule helps CFOs and finance leaders manage cash flow, ensure compliance, and avoid costly fees and penalties. In this article, we’ll show you why a debt schedule is important for SaaS businesses and how to create one. 

What is a debt schedule?

A debt schedule is one of the supporting schedules for your financial reporting that outlines a company's debts, usually in a table format. Broadly, it should include every debt. And for every debt, it should include the principal amount, interest rate, repayment schedule, and maturity date. 

The primary purpose of a debt schedule is to provide key information for each of the core financial statements in the three-statement financial model. Outstanding debt is reflected in the liabilities section of the balance sheet, the associated interest expenses are included in the income statement, and the debt payments are shown in the line item for financing activities on the cash flow statement. 

Done well, your debt schedule table can also serve as a means of tracking your company’s outstanding principal, accrued interest, and total debt service outstanding on an ongoing basis. 

In addition, the more comprehensive information the schedule provides for each debt helps leaders understand the company's financial obligations at a deeper level so they can manage its liabilities effectively. 

The key components of a debt schedule include:

• Opening balance (beginning of the period): The amount of debt outstanding at the start of the period. 
• Repayments (decreases): These are the payments made during the period to reduce the principal amount of the debt.
• Draws (increases): Any additional borrowings or draws on existing credit facilities.
• Interest expense: The cost of borrowing, which is calculated based on the outstanding balance and the applicable interest rate.
• Closing balance (end of the period): The remaining debt balance at the end of the period after accounting for repayments, draws, and interest.

Why every SaaS company with any debt should create a debt schedule

For growing SaaS companies, managing debt effectively can be the difference between scaling smoothly and running into cash flow challenges. 

At its core, a debt schedule provides a comprehensive timeline of all your company's debt commitments, organized by maturity dates. 

This helps leaders estimate how much they need to pay on maturity and anticipate upcoming cash shortfalls that would require additional funding.

The many benefits of debt schedules

Debt schedules have a lot of benefits for startups. Below are some of the biggest benefits  every SaaS company with any kind of debt can gain from creating one:

Strategic cash flow management

A debt schedule prevents any payment surprises by giving leaders a clear view of upcoming obligations. This is important for SaaS businesses, where maintaining consistent cash flow alongside debt payments can be especially challenging during periods of rapid growth. 

With a debt schedule, leaders can anticipate potential cash shortfalls and take steps to secure additional financing or refinance their current debt to extend their cash runway if needed.

More negotiating power

With a detailed understanding of your debt portfolio, you’ll be better equipped to negotiate with lenders. This is because a debt schedule illustrates that you have financial responsibility to manage them effectively, which can result in more favorable interest rates and terms.

Covenant compliance tracking

For startups, financing agreements often include covenants. These are specific conditions or financial ratios that must be maintained. 

A well-maintained debt schedule provides clarity on these requirements, helping you prevent penalties, an acceleration in repayment terms, or even the withdrawal of financing. 

Staying on top of covenants is yet more evidence of your financial responsibility, which you can leverage in debt negotiations. 

Accurate cash flow forecasting

By detailing all debt payment obligations, a debt schedule helps finance teams create more accurate cash flow projections. This clarity makes it easier for CFOs and CEOs to assess their ability to take on new loans or invest in growth opportunities.

Strategic decision making

A debt schedule provides the foundation for making critical business decisions. For example, Do you want to know if you can afford to hire that new development team? Are you curious about whether refinancing your existing debt makes sense given current market rates? 

With a clear picture of your company's debt capacity and future obligations, you can better evaluate opportunities like debt refinancing, assess the timing of major investments, and understand how new debt would impact the overall financial structure. 

How to build a comprehensive debt schedule

Many finance teams use a simple corkscrew model to manage their debt schedule and integrate debt planning with their overall financial forecasting. 

Here, we’ll show you how to build a more comprehensive debt schedule for your startup from scratch. You might also consider investing in a modern FP&A software if you want to automate some of these steps.

Step 1: Gather all information pertaining to your debts

Creating a debt schedule starts with gathering all your company's long-term financial obligations, including your loans, leases, bonds or contracts, and notes payable.  

Step 2: Create debt tranches table and financing assumptions

To do this, you need to map out what you owe and to whom. Create a table that captures each debt type you've taken on, including key details like principal amount, interest rate, maturity date, and payment frequency, grouping them into tranches. 

A debt tranche is a component of your debt that has different terms, risks, and potential returns. A debt tranche can be made up of multiple loans or a component of an individual loan. The key here is to group debts with similar characteristics together in order to better understand their impact on the business.

For each debt tranche, the borrowed amount should be expressed as a multiple of your annual recurring revenue (ARR). The reason for this is that for SaaS companies, lenders often base loans on a multiple of your ARR as it better reflects the predictability of recurring income. Thus, expressing your debt as a multiple of your recurring revenue helps you and the lender know how much additional debt you could take on.

You also need to make the right assumptions for each type of debt, including specific terms or conditions that affect repayment. These assumptions help you manage cash flow variances and accurately model how the debt interacts with your overall cash flow and financial forecasts.

Step 3: Calculate interest expense

In this step, you map out your interest calculations for each debt tranche. Different types of debt often have different ways of calculating interest. 

For example, revolving credit lines typically use a base rate (e.g. the Secured Overnight Financing Rate or “SOFR” or other regional benchmark rates) plus a margin whereas subordinated debt usually comes with a fixed rate. 

You also need to factor in how interest is calculated (simple vs. compound) and the payment frequency.

Step 4: Determine mandatory loan repayment percentages

Mandatory loan repayment is the minimum amount you must pay back each year per your loan agreement and includes both principal and interest. 

For example, a simple interest loan requires you pay back a certain percentage of the original loan amount each year. In these cases, the payment stays constant regardless of your remaining balance. 

In contrast, a compound loan may have the same percentage rate, but the payments will vary because the interest is calculated periodically. Every time it’s calculated, it’s added to the principal, which changes the basis of the next interest calculation. 

In either case, however, the debt will have a defined repayment percentage that you need to factor into your debt schedule.  

Step 5: Account for financing fees

The financing fee is the cost incurred by the company to acquire a debt. These can include upfront charges paid when the loan is initiated (often called origination fees), ongoing commitment fees for unused portions of credit facilities (e.g. open lines of credit), annual maintenance fees, and potential amendment or extension fees. 

In accounting, financing fees are typically capitalized and amortized over the life of the loan. Just like deferred revenue involves spreading revenues over time, here, you’re spreading the financing fees across multiple periods rather than expensing them all at once.  

When creating a debt schedule, create a separate section to track these fees and their payment schedules.

Step 6: Model for optional repayments (cash sweep)

Sometimes, companies choose to pay off their debt faster if they have extra cash available. This is often called a "cash sweep." 

For example, your debt schedule might include a cash sweep where you plan to use half of your leftover cash at the end of a period to pay down the loan. But this only happens after you’ve covered all mandatory payments and other expenses.

The key to modeling these repayments is accurately calculating your cash flow and setting the right assumptions. Additionally, leaders should also understand the payment waterfall that determines how that cash can be used, such as limits or penalties for early payments.

Step 7: Link operating assumptions and financial forecasts

A debt schedule doesn't work in isolation. It needs to fit into your overall financial forecast. 

To do this, you need to link your projections for EBITDA and working capital requirements and maintain alignment with your CapEx schedule. 

You should also have real-time visibility into how the change in any one of these can impact how much cash is available for debt payments at certain periods. For example, if you’re planning significant capital expenditures in a specific quarter, you may need to scale back optional debt payments during that time. 

Step 8: Build the final debt schedule

The final step is to calculate the ending debt balances for each tranche and the total interest expense. 

To calculate the total debt balance, simply add up the ending balances of all the tranches for each period. For interest expense, use the average debt balance, which is the average of the beginning and ending balances for the period.

Before finalizing, link any remaining items of your financial forecast to the debt schedule. This is critical for the roll-forward calculations for each tranche of debt. 

The above seven steps can be done in two ways: manually with spreadsheets or with the aid of a SaaS financial planning software. While spreadsheets work well for startups managing a few loans, they become problematic as your debt portfolio grows.

Juggling manual spreadsheets comes with a lot many problems: formula errors can lead to significant miscalculations, maintaining multiple files is time-consuming, and using separate spreadsheets across teams creates version control issues. Even small mistakes in record-keeping can result in costly financial planning blunders.

Simplify your debt tracking with Drivetrain 

Cash flows in SaaS companies are unpredictable. Championing greater control over these cash flows requires a 360-degree view of the cash flow processes, where every inflow and outflow is carefully tracked and analyzed. 

The debt schedule provides key information for performing an accurate cash flow analysis, providing valuable insights into debt obligations and available capital. 

While creating a debt schedule in spreadsheets is common practice, it comes with significant limitations. Finance management software offers different tools that can help you automate different parts of the process of building a debt schedule and reduce a lot of the human  error that spreadsheets can introduce. 

However, using a comprehensive, strategic finance platform like Drivetrain, not only helps you with debt tracking but also enables you to fully understand and optimize all aspects of your company’s financial performance, with features including:  

• 200+ native integrations: Drivetrain integrates seamlessly with all your core business systems to automatically consolidate your data into a single platform. This eliminates manual data entry and provides real-time visibility into business performance.
• Support for cross-functional collaboration: A debt schedule often requires some back-and-forth communication between different teams and departments. Drivetrain makes this easy with in-app tools like instant messaging and threaded comments to streamline communication, enabling seamless collaboration across all teams. 
• Track of key metrics: In Drivetrain, you can monitor all your key SaaS metrics and KPIs (e.g. debt-to-equity ratios), along with payment schedules and cash flow projections in real time. Changes in any metric automatically update across your entire financial model. 
• User-friendly interface: Striking the perfect balance between powerful FP&A capabilities and user-friendly design, Drivetrain provides advanced financial planning features and maintains the familiar feel of spreadsheets that finance professionals are accustomed to. 
• Purpose-built for SaaS: Drivetrain understands the unique challenges of SaaS businesses. The platform adapts to your company's evolving needs, handling variable payment structures, revenue-based financing, and complex covenant tracking. 

Ready to see Drivetrain in action? Explore how Drivetrain can help you make strategic decisions about refinancing, new debt facilities, or investment opportunities.