Every company deals with liabilities and debt, but not all manage them in a way that benefits the business. The problem isn't having debt itself, but rather not understanding how it affects liquidity, solvency, and growth potential. Let us explain…
As you may already know, liabilities represent all of a company's obligations to third parties: banks, suppliers, government agencies, staff, or partners. They include both financial debts and operational and tax obligations.
In practice, liabilities determine:
- How much room for maneuver does the company have?
- How much liquidity do you need to operate normally, and
- To what extent can it take on new projects or investments?.
A company can be profitable in accounting terms and yet be suffocated by its debt structure.
- Caution. Profit does not always mean financial health if liabilities are not properly managed.
Types of liabilities and their real effect on daily life
Not all liabilities carry the same weight or generate the same risks. It is important to distinguish, at least, between:
- Current liabilities: short-term debts (suppliers, tax authorities, social security, loans of less than one year).
- Non-current liabilities: long-term debts (loans, leasing, structural financing).
An excess of current liabilities usually translates into cash flow problems, while poorly adjusted long-term liabilities can limit future investment capacity.
When most of the debt matures in the short term, the risk is not theoretical: it is immediate.
When does debt cease to be a useful tool?
Debt is not inherently negative. When used wisely, it can allow a company to grow, invest, or stabilize. The problem arises when:
- Current spending is financed with structural debt,
- Tax deferrals are being implemented as a permanent solution,
- Suppliers accumulate due to a lack of payment planning, or
- The actual return capacity is not reviewed.
In these cases, debt ceases to drive the company and instead becomes a factor in all decisions, from hiring to setting prices.
- Warning. If decisions are made thinking first about "which debt is due this month", something is already out of balance.
Common signs of imbalance in liabilities
There are clear indications that the liabilities structure needs correction:
- Recurring payment delays,
- Constant dependence on credit policies,
- Continued use of tax deferrals,
- Difficulty in accessing new financing,
- Loss of credibility with suppliers.
These signs do not usually appear suddenly, but gradually.
When the problem is already visible in the cash flow, it has usually been developing in the balance sheet for some time.
Common ways to correct an unbalanced debt structure
Correction isn't always about "earning more," but about reorganizing what already exists. Some common measures include:
- Restructure maturities: convert short-term debt into long-term debt when feasible.
- Unify financing: replace multiple small debts with a clearer structure.
- Review payment policy: negotiate realistic suppliers and schedules.
- Managing public debt: planning tax deferrals within a sustainable framework.
- Equity reinforcement: contributions from partners or capitalization of debts where appropriate.
Each company requires a different combination, not standard solutions.
- Attention. Restructuring debt in time is usually more effective - and less costly - than reacting too late.
The importance of anticipating
Regularly reviewing liabilities allows you to detect problems before they become emergencies. Analyzing key ratios, cash flows, and future maturities provides a much more realistic view than simply looking at the net income.
In many cases, small preventative adjustments avoid scenarios of financial gridlock.
- Attention. The best time to correct debt is when it doesn't hurt yet.
Let's look at a simple example:
Initial situation of a service company:
- Total assets: €500,000
- Equity: €150,000
- Total liabilities: €350,000
Breakdown of liabilities:
- Suppliers and short-term debts: €220,000
- Long-term loans: €130,000
The problem is not the total volume of debt, but that 63% of the liabilities mature in less than a year, generating constant cash flow pressures.
Corrective measures applied:
- Bank restructuring of €100,000 of short-term debt over 5 years.
- Partners' contribution of €50,000 to reduce debt with suppliers.
Situation after the adjustment:
- Current liabilities: €120,000
- Non-current liabilities: €230,000
- Equity: €200,000
Result:
- Immediate improvement in liquidity.
- Lower monthly payment pressure.
- Greater ability to plan and negotiate.
Despite the fact that revenue has not increased, the company is regaining its financial stability by acting in this way.
Checklist: Financial diagnosis of liabilities and debts in the company
Answering these questions honestly is often the first step in anticipating and correcting problems in time. We help you through the process
Mark YES or NO for each item:
- Liquidity and treasury
☐ The company can handle monthly payments without the usual stress
☐ There is no constant reliance on credit policies to pay for current expenses.
☐ The cash or bank balance comfortably covers immediate due dates
If liquidity is only maintained by resorting to one-off financing, the problem usually lies in the liability structure.
- Short-term debt
☐ Most short-term debts have a clear repayment plan
☐ Suppliers who are late on payments do not accumulate on a recurring basis
☐ Deferrals with the Tax Office or Social Security are not used as a permanent solution
A high level of current liabilities is one of the main sources of silent financial risk.
- Long-term debt
☐ Loan or leasing payments are manageable with actual cash flow generation
☐ Long-term debt finances investments, not current spending
☐ No loans for cash flow emergencies have been renegotiated in the last year
When long-term debt is used to "plug holes," the problem is displaced, not solved.
- Debt-to-equity ratio
☐ Equity has not been decreasing year after year
☐ The company does not depend exclusively on external financing to operate
☐ There is room to absorb losses without compromising continuity
A company with little equity is more vulnerable to any deviation in income.
- Maneuverability and decision-making
☐ Strategic decisions are not conditioned by immediate deadlines
☐ You can invest or grow without debt being the primary obstacle
☐ The company can negotiate with suppliers from a balanced position
When debt dictates the agenda, the company loses decision-making power.
- Financial vision and control
☐ A cash flow forecast is available for several months ahead
☐ Future due dates are clearly known
☐ Financial analysis goes beyond the annual accounting result
Without planning, financial problems always come before solutions.
Indicative result
- Majority of YES answers → The financial structure is reasonably balanced.
- Several NO answers → It is advisable to review liabilities, deadlines and financing before major tensions arise.
- Many NOs concentrated in the short term and liquidity → High risk of short-term financial imbalance.
Attention. This checklist does not replace a complete financial analysis, but it serves as an early warning sign to detect when action is needed.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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