Cash Flow in the Corporate Projections

In this article, we will address some common questions related to cash flow in the corporate projections. Unlike personal projections, the automatic cash flow management (CFM) is always turned on for the Corporate Planning page. Unless Advanced Options have been utilized, this means:

• a surplus of cash at the end of the year will be automatically saved to available Financial Assets, or the Cash Balance 
• a shortfall of cash at the end of the year will be displayed under Net Cash Flow as a negative value and an automatic loan will be created to cover it, tracked under the Cash Balance

Please refer to the following article for details about the underlying assumptions that Snap makes about the timing of contributions and withdrawals and other cash flow settings: Basic Assumptions - Corporate Component. 

Typically you will want to set up your projections to have a Net Cash Flow of $0 in each year but if you want to use Cash Balance, you can adjust the settings for the rate of return and interest under Settings -> Cash Balance. More details can be found here: Net Cash Flow, Cash Balance, and Cash Account settings. In rare circumstances, you may wish to turn off the accumulation of surpluses and/or shortfalls in the Cash Balance of a corporation. This can be done following the steps outlined here: Setting up Salary, Expenses, and Savings for the Corporation.

If your projections have a positive or negative Net Cash Flow, here are a few reasons this could happen and how you can address it.

If you enter a specific value in the Contribution column, this is called an override and the cell will be highlighted yellow. If the Contribution is less than the available surplus cash, there will be a net positive cash flow that will be saved to the Cash Balance. If the Contribution is more than the available surplus cash there will be a net negative Cash Flow and the Cash Balance may also be negative.  To avoid having any values in the Cash Balance, clear the manual overrides on the Contribution column.

Once the overrides are cleared and the Corporation is re-run, the automatic contributions will take over and the Net Cash Flow and Cash Balance will be zeroed out unless there are other reasons for a shortfall of cash (for example, not enough income entered to cover the expenses, salary, debt payments, etc.)

To specify the exact value to contribute to or withdraw from the Financial Assets, follow the steps outlined here: Setting up Salary, Expenses, and Savings for the Corporation.

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The issuing of dividends is based on the Corporation's Net Worth. In other words, dividends will be allowed to be paid out up to the point that the Net Worth of the Corporation goes to zero. This means that once the Financial Assets are depleted, Snap will allow dividends to be issued if there is a Real Asset owned by the Corporation.

Here is an example where a shortfall is created (a negative Cash Balance) once the Financial Assets are depleted and non-eligible dividends are still being issued. 

The pink highlighting points out when the shortfall is created. To continue paying out the dividends without requiring a loan, the real asset will need to be sold before this point. 

In this example, the shortfall starts in 2045, and the property would need to be sold before that year to continue to pay out the $100,000 of non-eligible dividends.

John decided that he would sell the property that year.  Enter this Future Sale Date on the Scenario Setup -> Assets page.

Back on the Corporate Planning page, the net proceeds from the property sale are contributed to the Investment account in the year 2045 automatically and the non-eligible dividends continue to be paid out until the Corporate Net Worth reaches $0.

A shortfall may also be created with the automatic payout of Capital Dividends past a certain threshold. Please check if there is a Real Asset in the projections and enter a Future Sale Date for this asset to prevent the shortfall.

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If no Financial Assets have been entered, any surplus cash will be saved in the Cash Account. Any shortfalls will be covered by a loan tracked under the Cash Balance. To avoid this, go to the Scenario Setup -> Assets page and select Add Financial Asset. If the corporation has no Financial Assets yet, enter a placeholder account to be used in the projections with a Value of $0 and assign the appropriate asset allocation. 

The surplus cash can now be automatically saved to the Investment account rather than to the Cash Balance.

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To cover the payment of taxes each year as well as salaries, expenses, loan payments, and savings contributions, the income of the Corporation will be used first, then withdrawals will be made from the Financial Assets. If there isn't enough income coming in, or enough money in the Financial Assets to cover the outflows, a shortfall will occur. 

In this example, the Line of Credit payments are more than what can be covered by the Investments.

If you see a shortfall in your corporate projections, check that expenses, salaries, and loan payments have been stopped before the Financial Assets have been depleted.

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