Optimise your balance sheet and debt

While the word "debt" may cause fear, it is an inevitable part of a company's life. Managers are well aware that debt makes it possible to finance investments as well as sometimes its working capital requirement (WCR). Where we need to remain vigilant is with a company's debt ratio - the ratio of debt to equity. If it is too high, it can be a sign of poor solvency.

Fortunately, there are various ways of optimising your company's debt and increasing the value of your balance sheet.

How to optimise your balance sheet assets/liabilities

A company's balance sheet is a snapshot of its economic and financial state. It consists of assets and liabilities. The former include the establishment's tangible and intangible assets (use of funds), while the latter consist of what the company owes to its third parties (resources). Debts are thus part of the liabilities: it is money due to banks and partners.


It is vital that the balance sheet is balanced. To do this, there are several ways to optimise it so that you can present your accounts in their best light to bankers and investors.


Strengthen your share capital

The share capital is the contribution of partners or shareholders. It therefore represents a debt and is recognised in your balance sheet liabilities. To optimise the latter, it may be worthwhile strengthening this share capital. It reflects the level of investment and risk-taking of your partners or shareholders. It forms part of shareholders' equity, which is included in liabilities.


Shareholders' equity also includes reserves (previous profits not distributed) and retained earnings (previous profits not distributed and not put in reserves). By definition, the latter are distributable, so are less stable than the company's share capital. Conclusion: it may be worthwhile transferring some reserves to share capital.


Set the accounts closing date intelligently

Here is a simple way to optimise your balance sheet: choose the closing date of your accounts carefully. Choose a date when you have a lot of cash - cash tends to make your balance sheet look "better". If it is positive, it will appear in the asset column. For example, you can set the closing date 60 days after a period of strong seasonal demand, when stocks are low and you have collected your customers' receivables.


Reduce stocks when the balance sheet is drawn up

Before you draw up your balance sheet, it is important to reduce your stocks as much as possible. This is because too much stock can be synonymous with unsold goods and obsolescence, but it also mobilises cash. To reduce your stocks, you can, for example, carry out a reduction in stocks a few weeks before drawing up the balance sheet.


Reduce customers' outstanding debts

A few weeks before closing the accounts, consider reminding customers who have not paid their invoices. Not only do trade receivables mobilise cash, but they also represent a risk of non-recovery, a risk that companies cannot take in these times of economic crisis. 

How can operating leases
limit debt?

Debt, which is included in a company's liabilities, is used in particular to finance investments: industrial machinery, IT equipment, vehicle fleets, etc. It is taken out with a bank, with which you need to negotiate the best rate.


There is an alternative that can be a good way of reducing debt: operating leases. They are an effective way of equipping yourself with state-of-the-art equipment. By signing a contract with a leasing company, you make monthly payments to use the equipment but do not own it. The advantage of this is that lease payments are considered expenses and do not reduce your debt capacity, unlike conventional bank loans. This leaves you free to take out a bank loan for other high value-added projects.


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