You may have heard of recapitulation and consolidation before. These are options that might be able to help your business in some instances. You might not know many details about what they are, though, or how they work.
We’ll take some time today to talk about both concepts. They’re actually not all that complicated, and you should know about them, particularly if you’re having debt-related business problems.
What Exactly is Recapitulation?
We’ll start by defining recapitulation. Recapitulation is the process through which a company can restructure its debt and equity mixture. The idea behind it is that your business wants to stabilize its capital structure.
One of the most common ways to do it is to exchange one financing form for another. As an example, you might remove the company’s preferred shares and use bonds to replace them. For more info on this, visit LQDfinance.com
What About Consolidation?
As for consolidation, if you want to do this for your company, it means that you combine your liabilities, assets, and other financial items into one more basic or fundamental model. You might hear this term in financial accounting a lot.
When you do, the person using it likely means that you’re consolidating your financial statements. Once you do this, then from that point forward, all of your subsidiaries are under a single parent company. Under this umbrella, you can see your entire financial outlook much more easily.
How Are They Related to One Another?
The way recapitulation and consolidation relate to one another is that sometimes, you want to optimize your existing debt. You probably want to do that because you’re having trouble coming out with your products or offering your services as you normally would. You’re likely having a cash flow issue, and you’re trying to figure out how to take care of it satisfactorily.
You also might want to expand, and you don’t have the ready cash to do it. Either way, you’ll need to restructure your finances into a more acceptable form.
You might approach a business finance outfit that offers customized debt consolidation and recapitulation loans. This is a way that you can improve your financial portfolio instantly.
Streamlining Your Debt
If you’re thinking about doing this, then it amounts to debt streamlining. You’re merging all of your outstanding debt into one monthly bill, which simplifies matters. It’s helpful knowing that you have to make a single payment each month to one lender.
Sometimes, through no fault of your own, you start to owe money to different entities because you have had to take out various loans along the way. This can happen if you’re trying to keep your business afloat during difficult times.
This Can Get You a Better Interest Rate
Getting a recapitulation and consolidation loan can get you a better interest rate. That can definitely make a great deal of difference if you have a larger company with a sizable loan you have to worry about every month.
If you have a better interest rate, you can boost your company’s credit score. That’s always great, but what’s even better is that you’ve bolstered your cash flow.
It’s now not inconceivable that you might expand into a new market that you were eying. You might allocate more R and D money, or perhaps you can start a more aggressive social media ad campaign.
Where your ambitions lie will determine what you do with that extra money. Presumably, you will funnel it back into the business in one way or another.
Are There Any Drawbacks?
If you decide that recapitulation and consolidation make the most sense for you, then the only possible drawback is that you’ll probably have a more extended loan repayment schedule. You will not be out from under that loan until more time has elapsed.
This might seem like a bad thing, but keep in mind that you only restructured your debt if you have faith in the company. If you feel like it’s going nowhere and your business model is not sustainable, then you probably wouldn’t have bothered with this move.
Often, companies will look into this option if they feel like they’re close to sustaining a successful business model, but they need to modify a few financial details. Once you’ve found an entity that’s willing to let you restructure your finances in this way, there are a whole new set of options on the table for you.
You can expand into foreign markets, or you might buy out a competitor. You might also merge with another company if you feel like that will be most beneficial for both of you.
Your original loans might also have had some burdensome restrictions attached to them. You can get rid of those and have a much more comprehensive loan from this point forward.
Maybe your company is in better financial shape now than when you first got the onerous loans that you are carrying. If so, you are likely the perfect candidate for this type of restructuring opportunity.
Your Debt-to-Equity Ratio
If you do this, it also stabilizes what business owners sometimes call your debt-to-equity ratio. This is a fancy way to say how much money you have going out versus how much you have coming in. As long as you’re in the black, and this restructuring keeps you there, this is the perfect way to attract some new investors.
If you approach a venture capital firm or try to get an angel investor’s interest, they are significantly more likely to be receptive if they can see simple, easy-to-understand financials. Going through the consolidation and recapitulation process might be what it takes to get them to come on board with you.
Many companies find that they’re in much better shape than they thought they were once they do this. It’s in no way hyperbolic to say that you might be able to save your company through this one decisive action.