For many businesses, new debt is an enabler of growth, expansion or transformation. But without careful planning, the decision to raise additional debt can lead to long-term financial strain, reduced flexibility and missed strategic opportunities.
For Chief Financial Officers and finance leaders, debt is never just about the interest rate or lender selection. It is about ensuring the entire capital structure supports business objectives, risk tolerance and long-term value creation. Before any new borrowing takes place, a robust capital management framework must be in place.
At Aberdeen Capital, we advise CFOs and boards on the strategic planning required before taking on new debt. In this article, we outline the key capital management decisions CFOs must address before committing to additional borrowing and how external advisors help improve funding outcomes.
What Capital Management Means for CFOs
In practical terms, capital management is the process of planning, monitoring and controlling how a business finances its operations, growth and liabilities. For CFOs, this involves ensuring that capital is available, affordable and aligned with business strategy. It also means managing risk, preserving liquidity and protecting the balance sheet against external shocks.
Key areas of capital management include:
- Structuring equity and debt appropriately
- Aligning financing with investment plans and business cycles
- Ensuring long-term cash flow coverage
- Managing cost of capital and interest rate exposure
- Stress testing different funding scenarios
At the strategic level, capital management connects directly to value creation. It helps businesses maintain financial agility while funding new initiatives. To see how this applies in practice, visit our Capital Management Solutions page.
Assessing True Debt Capacity
Before seeking new funding, CFOs must determine whether the business has the capacity to service more debt. Debt capacity is not just a function of balance sheet ratios. It depends on the consistency of cash flows, covenant flexibility and the business’s resilience to market pressures.
Cash Flow Sustainability
Debt is serviced with cash, not profit. Therefore, understanding free cash flow after operational and capital requirements is essential. Forecasts must be conservative and based on realistic assumptions about revenue, margins and payment cycles. CFOs should focus on interest coverage, fixed charge coverage and repayment schedules to avoid over-committing future cash.
Covenant Headroom
Lenders often impose financial covenants, such as leverage ratios, interest cover or tangible net worth requirements. Even if a business is within its covenants today, new borrowing can reduce headroom and leave no room for unexpected events. Proper capital management means modelling covenant buffers and identifying points of pressure.
Scenario Planning and Stress Testing
Economic conditions can change rapidly. Stress testing helps assess how rising interest rates, falling revenue or cost pressures would impact debt servicing. This analysis allows CFOs to determine appropriate borrowing levels and set financial guardrails. Strategic capital management must incorporate downside scenarios before borrowing decisions are finalised.
CFOs can engage Risk Management Consultants to assist with stress testing and to enhance internal governance processes.
Balancing Growth Ambitions With Financial Resilience
Ambition must be tempered by resilience. While growth capital can support expansion or acquisitions, borrowing too aggressively may reduce flexibility in future decisions or expose the business to refinancing risks.
Avoiding Over-Leverage
In periods of low interest rates or strong market confidence, businesses may be tempted to take on more debt than is prudent. However, high leverage can restrict future funding access, increase lender scrutiny and introduce refinancing pressure if market conditions deteriorate. The right capital management approach helps maintain balance and ensures long-term stability.
Timing Debt Against Business Cycles
Debt should be aligned to the business cycle and the purpose of the funding. For example, borrowing for growth makes sense when earnings are expanding, cash flow is consistent and investment returns are measurable. However, borrowing during periods of margin compression or macroeconomic uncertainty may introduce unnecessary pressure.
Planning Beyond the Transaction
Capital planning is not just about funding the current initiative. It must also account for future needs. For example, will the business require more funding in twelve months? Will this new facility crowd out future borrowing? A well-considered capital strategy looks beyond the immediate project and considers future flexibility, liquidity and risk.
CFOs who take a strategic approach to funding decisions are better equipped to align capital structure with enterprise goals. At Aberdeen Capital, we help finance leaders build capital plans that consider debt maturity profiles, funding gaps and risk appetite through our Capital Management Solutions.
Liquidity, Treasury and Cash Flow Visibility
No capital management decision is complete without a clear view of daily liquidity and cash movements. Taking on new debt without understanding short-term liquidity patterns increases the risk of cash stress or covenant breaches.
Why Daily Liquidity Matters
Debt repayments do not occur in isolation. They must be funded alongside wages, supplier payments, tax obligations and capital expenditure. Visibility over cash inflows and outflows ensures that repayments can be absorbed without compromising operations.
Treasury processes should enable CFOs to track available cash across bank accounts, project future cash positions and identify upcoming obligations. If a business cannot track daily liquidity accurately, it risks borrowing blindly.
Tools for Liquidity Control
Modern treasury management combines transaction banking, digital tools and process optimisation to improve visibility. Aberdeen Capital helps businesses enhance their treasury capabilities through Transaction Banking and Liquidity Management, enabling better control over working capital and funding alignment.
Common Capital Management Mistakes Before Borrowing
Even experienced finance teams can fall into traps when planning new debt. Below are several mistakes that undermine capital efficiency and increase risk.
Underestimating Risk Exposure
Many businesses do not fully account for variable interest rates, refinancing risk or changes in credit markets. Without scenario analysis or external benchmarking, these risks may be overlooked until they impact cash flow or limit access to future funding.
Ignoring Refinancing Impacts
When refinancing existing debt or layering new loans on top of current facilities, CFOs must consider the combined impact on the balance sheet. Refinancing can reset covenants, increase costs or reduce flexibility. Explore more on this topic in our Refinance Business Loan service page.
Over-Reliance on Single Lenders
Relying on a single lender may seem efficient but can reduce negotiating power and increase concentration risk. A more diversified funding base allows for flexibility and resilience. Strategic debt advisors can help CFOs broaden their funding options and reduce dependence on individual institutions.
Working with Risk Management Consultants can help identify these weaknesses and implement safeguards before new facilities are finalised.
How Strategic Advisors Improve Capital Outcomes
Experienced capital advisors bring objective insight and market expertise to funding decisions. By working alongside CFOs and finance teams, they support stronger outcomes across several areas.
Providing Independent Perspective
An external advisor can challenge assumptions, identify blind spots and bring an impartial lens to funding decisions. This helps balance internal ambition with external realities and ensures capital strategy aligns with risk tolerance and investor expectations.
Strengthening Lender Negotiation
Advisors understand lender criteria, market conditions and credit appetite. This knowledge improves the quality of funding submissions and supports stronger negotiation outcomes. Whether seeking better pricing, fewer covenants or longer terms, advisors help deliver terms that suit the business.
Aligning Capital Strategy With Business Objectives
The best funding decisions are those that support long-term strategy. Advisors help ensure that capital structure planning matches business priorities, whether that means reducing cost of capital, increasing flexibility or preparing for growth.
To learn how Aberdeen Capital supports finance leaders across all industries, visit the Our Team page.
How Aberdeen Capital Supports CFO-Level Decisions
At Aberdeen Capital, we work with CFOs, finance directors and boards to design and implement effective capital strategies that support growth while managing risk.
We offer a range of services designed specifically for businesses approaching new borrowing or refinancing existing debt.
Capital Planning and Modelling
We assist with long-term funding models, debt maturity profiles, interest exposure and repayment forecasts. This ensures debt is structured around business performance, not just available credit.
Debt Structuring and Refinancing
Our advisors help assess and optimise your current debt stack before any new facility is considered. We engage multiple lenders and private credit providers to build competitive, flexible solutions. Learn more through our Refinance Business Loan services.
Governance and Risk Integration
We embed governance practices into funding decisions. This includes scenario planning, covenant management and board-level reporting, supported by our team of experienced Risk Management Consultants.
If your business is considering new funding, speak to a capital management advisor to ensure your debt strategy is built for long-term success.
Frequently Asked Questions
Why is capital management important before taking on debt?
It ensures the business can service debt without compromising stability, liquidity or long-term strategy.
How can CFOs assess debt capacity?
By analysing free cash flow, covenant headroom and stress-tested scenarios that reflect possible market changes.
What risks arise from poor capital management?
These include limited funding access, higher cost of capital, covenant breaches and reduced flexibility in future business planning.
Should existing debt be reviewed before new borrowing?
Yes. Existing debt structure directly impacts the capacity, cost and terms of any new facilities.
Can Aberdeen Capital help CFOs plan capital strategy?
Yes. Aberdeen Capital provides independent advice and capital management support tailored to CFO-level decision making.
