To make money a company needs to spend money. And if that money is borrowed, it generally needs to be repaid with interest. If a business does not have any debt, it’s an indication that it’s not maximising on the opportunity of access to credit, which could be used to grow the business or maximise profits. If a business has too much debt, it might be struggling to repay the interest. The level of appropriate debt depends on the type of business and the returns it can generate from its capital outlay as well as the amount of trust lending institutions would put in it. BusinessPortal-SA considers these and other financial outflows in the Liabilities section.
The first section gives an indication on Outstanding Invoices gives an idea of the amount of money that the company generally spends in a month as well as how “up to date” the payments are. Given the time specific nature of Liabilities, they are all furbished with time stamps on the BusinessPortal range of websites. Though no one likes admitting it, some invoices are invariably paid late and this might incur future penalties. When investing in a company these might be nasty and unexpected little surprises. Though the BusinessPortal range of websites don’t go into depth at this point, it should be noted that some creditors are more lenient than others. Owing money to the relevant Inland Revenue Service is greatly more serious than owing money to a partner that is invested in the company since the revenue service can impose huge penalties and shut the company down. Incidentally, the BusinessPortal range of websites do not deal with tax liabilities directly, since proof of tax (and especially VAT or GST for relevant countries) payments are an important part of the paperwork that needs to be verified for a due diligence. The BusinessPortal range of websites give the opportunity to pass this sort of information on in the “Documents” section which allows for doc, docx, pdf, xls and xlsx files up to 5MB to be transferred.
The remaining sections are fairly self-explanatory and essentially represent sectors where money would normally flow out of the business i.e. repayments on assets, loans to internal sources (board members, partners, managers or employees), loans to external sources and overdue salaries (another topic that businesses don’t like to admit to but under tough economic conditions this might form a legitimate way of transferring costs into better months). Unsellable Stock reflects money that the business paid out (for raw materials, manufacturing costs etc.) that it cannot recoup. Depending on the nature of this stock, it may have to be written off (or donated) entirely or might need to be repurposed, reworked or sold at a loss. These sections are generally seen as Non-Current Liabilities in company financials.
The “Other Monthly Costs” section is essentially a “catch-all” for any costs that aren’t represented in the previous sections and is intended for recurring costs like rental. Note that Business Process related costs such as Purchasing of products or -raw materials, Labour-, Transport-, Storage- and Licence Fees, Services, Consumables, Marketing and Commissions have already been considered in the Human Resource Information, Selling Proposition and Business Processes tabs (See “Due Diligence” information – What do I need to know. Part 4, “Due Diligence” information – What do I need to know. Part 6 and “Due Diligence” information – What do I need to know. Part 7).