The £800k monthly revenue covenant illustration

The hypothetical test

A source explanation starts with £12m annual budgeted revenue, expressed as £1m per month, and permits a 20% deviation below that monthly amount. It illustrates how a lender might define a financial test. It is not a published signed covenant or evidence that a particular business had these terms. The explanation comes from recovered audio and should retain that source limitation. Watch source

Calculate the floor

1. Average monthly budget: £12,000,000 ÷ 12 = £1,000,000.
2. Permitted shortfall: £1,000,000 × 20% = £200,000.
3. Illustrated minimum: £1,000,000 − £200,000 = £800,000.

For an editorial extension, £850k monthly revenue would sit £50k above this hypothetical floor; £790k would sit £10k below it. These invented test results explain the arithmetic only. They are not actual trading figures or a conclusion about what a real lender would do.

Keep the test’s meaning intact

This is a revenue test. It is not EBITDA, minimum cash, leverage or debt-service coverage. Passing it would not establish that the company can pay interest, principal, suppliers or tax. Conversely, a profitable month might still fall below a separately defined revenue threshold. A real agreement determines measurement periods, adjustments, reporting and consequences.

The annual-to-monthly division also assumes a flat profile for teaching. A seasonal business needs its actual covenant definition and budget, not this averaged substitute. The source separately warns that cash tests can depend on the point in the payment cycle when balances are measured. Watch source

Before signing, record each covenant’s calculation and test dates. Check available operating cash separately. Read covenants alongside cash flow.