4 Steps to Build a Debt Repayment Schedule That Works for Your CPG Brand

Debt is a four-letter word, but it isn't THAT kind of four-letter word — unless you don't manage it carefully. In many cases, taking on debt allows CPG companies to take advantage of market opportunities immediately instead of waiting for cash to start flowing. You can also use debt as an alternative to equity financing, ensuring you retain complete ownership while you grow your business.

After nearly a decade working in financial planning and analysis, I always advise CPG business owners to work out a realistic repayment schedule before taking on new debt. At BBG, we recommend a four-step process to help you avoid cash flow disruptions while creating sustainable growth. I'm here to walk you through the four steps and explain how you can use a CPG debt repayment schedule to successfully manage your debt.

Step 1: Assess All Outstanding Debts

The first step is to create a comprehensive list of your debts. Think of it as a "debt inventory" designed to help you make better decisions. Your list should contain the following information about each debt:

• Interest rate

• Minimum monthly payment

• Payment due date

• Repayment terms

Here's a sample debt inventory to guide you through this step:

Interest Rate Minimum Monthly Payment Payment Due Date Repayment Terms
Debt 1 3.25% $243 1st 36 months

Debt 2 9.99% $43 10th 12 months

Debt 3 12.99% $682 18th 60 months

Debt 4 6.25% $104 1st 12 months

Understanding the terms of each debt makes it easier to determine which one to tackle first. In the example above, Debt 5 has the highest interest rate, so you might want to prioritize paying it off quickly so that you don't have to pay as much interest. If you're more concerned with cash flow, paying off Debt 3 early would give you an additional $682 per month to grow your business.

Creating a list of debts with repayment terms can also help you make better decisions. For example, three of the five debts in the sample table are due to be paid off within 3 years. If you know that you're close to paying off several debts, you may be able to say yes to a new opportunity instead of declining.

Step 2: Forecast Your Cash Flow

The next step in debt management for CPG brands is to create a detailed cash flow forecast. This type of forecasting allows you to estimate how much money will flow into and out of your business during a specific period. For example, it's common to create a 30-day forecast to estimate cash flow for the next month. 

Creating an accurate cash flow forecast is an essential step in CPG financial planning, as it helps you determine how much money you'll have available to reduce your debt balances. The process begins with estimating your revenue and expenses.

Estimating Revenue

One way to estimate revenue is to rely on historical data. Before creating a CPG debt repayment schedule, review financial documents from previous quarters to identify trends and growth patterns. Pay close attention to spikes and dips in revenue, as they can help you predict seasonality. 

It's also important to research industry trends. Read trade magazines, major newspapers, and other publications to learn more about what your competitors are doing in terms of pricing and product offerings. Finally, research economic conditions carefully. Changes in interest rates, unemployment, and other economic indicators often affect supply and demand, so they may increase or decrease your cash flow.

Once you gather enough data, you can create a realistic estimate. The simplest way to predict your revenue is to multiply the unit price by the number of units you expect to sell. Be sure to account for sales and other promotions when estimating revenue this way.

Another option is to assess the size of the market and estimate how much market share your company can capture. For example, if the whole market is worth $12 million, you'd generate about $1.2 million in gross revenue with a market share of 10%.

Accounting for Seasonality

After working with CPG brands for almost 10 years, I can honestly say that seasonality is one of the biggest challenges of developing CPG debt repayment strategies. Many companies bring in a significant percentage of their total revenue in a 1- or 2-month period, reducing cash flow during the rest of the year.

To account for seasonal changes, make sure you build seasonality into your forecast. If 50% of your revenue comes from fourth-quarter sales, your revenue estimates should be much lower for quarters one, two, and three. As you create your financial plan, make sure you have a calendar nearby to remind you of dates when sales typically surge or decline. 

Estimating Expenses

The process of estimating your expenses is similar to the process for predicting revenue. You have to review receipts, purchase orders, and other documents to determine how much you typically spend on fixed and variable costs. These are some of the most common fixed costs for CPH brands:

• Rent

• Utilities

• Salaries

• Employee benefits

• Insurance

Variable costs fluctuate with production, so they may be extremely high in some months and low in others. Examples of variable expenses include raw materials, packaging, sales commissions, and manufacturing costs.

Tracking economic conditions can also help you estimate your expenses accurately. For example, if a country implements new tariffs, you may have to pay more for raw materials. Tariffs may also result in reduced demand for your products overseas.

Step 3: Prioritize Debts Based on Cost and Urgency

At BBG, we advise emerging brands to develop a CPG debt repayment schedule based on cost and urgency. First, make your mandatory payments. Start with debts that are critical to maintaining your operations, such as the line of credit you use to fund orders. This type of debt is more important than a business loan used to purchase a single piece of equipment.

Next, focus on voluntary payments. If you have a debt with flexible repayment terms, you may not need to make a payment every month. Making voluntary payments reduces the amount of money owed, helping you pay off debt even faster. Save money by paying the debt with the highest interest rate first.

Finally, make extra principal payments on your long-term debt. Lenders charge interest on your principal balance, so the lower it is, the less interest you pay. This reduces the total cost of borrowing money.

Renegotiating Payment Terms

If necessary, renegotiate your payment terms to give your company a little more wiggle room. You may be able to negotiate a lower interest rate or extend your initial loan term, increasing your cash flow.

Step 4: Build a Debt Repayment Schedule in Your Financial Model

The final step in this process is to build a CPG debt repayment schedule within your existing financial model. This is crucial for understanding how to manage your debt stack and cash flow. Completing this step offers the following benefits:

• Putting your debt interest and principal payments in one place allows you to easily calculate the amount of money you need to service your debts.

• You have an opportunity to calculate a minimum cash balance and use that as a starting point for your debt payments.

• Once you estimate your cash flow, you can calculate your debt service coverage ratio, which measures your ability to meet your current debt obligations. This metric is critical when deciding if your company can afford to borrow funds.

To determine whether you have enough cash to cover both debt and operations, calculate these metrics:

• Cash runway: Cash runway is how long you have until your company runs out of cash. Calculate it by dividing your cash balance by your monthly burn rate (how much cash you spend per month).

• Free cash flow: FCF is the amount by which your operating cash flow exceeds your expenditures and working capital needs.

• Current ratio: A good current ratio indicates that you have enough resources to meet your short-term obligations. To calculate your current ratio, divide your current assets by your current liabilities. You can find these data points on your balance sheet.

Build a Debt Repayment Strategy That Fuels Growth

Emerging brand debt management is a complex concept, but you can create an effective CPG debt repayment schedule in four simple steps: assess your debts, forecast your cash flow, prioritize your debts based on cost and urgency, and build a repayment schedule in your financial model.

Balanced Business Group has extensive experience helping emerging CPG brands with financial planning and debt management. Contact us today to get personalized support as you develop a payment strategy to support your long-term success.

Author: Maggie Ojeda

With 9 years of experience in finance, specializing in Financial Planning & Analysis (FP&A) and cost management, Maggie Ojeda is a trusted expert in delivering actionable financial insights. She spent 4 years at Grupo Peñaflor, one of Argentina’s top wine producers, where she developed a deep understanding of the wine industry’s financial complexities. Currently, as the FP&A Team Lead at BBG, she leads financial strategy for Napa Valley boutique wineries and emerging CPG brands. Her expertise in financial modeling, variance analysis, and cost management enables her clients to make informed, strategic decisions for business growth.