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How to Calculate and Forecast Cash Flow After Dividends

How forecast dividends and payment dates will affect liquidity, cash flow and solvency. Select “Apply Changes” to include them in your forecasts.

12 Months from 1st...

May 2017 May 2018 May 2019

Profits Available

100,768 181,311 386,890

 

Year End Dividend

Dates Dividends Paid

Bank overdraft limit

Factoring / Invoice discounting

Factoring Ratio (% invoice value discounted)
Factoring Service Charge
Factoring Interest
 

12 Months from 1st...

May 2017 May 2018 May 2019
 

Bank Plus Undrawn Financing

  Before After Before After Before After
  22,314 22,314 8,758 8,758 39,643 39,643
  7,629 7,629 -2,301 -2,301 35,374 35,374
  3,799 3,799 -3,092 -3,092 38,738 38,738
  -16,263 -16,263 -21,567 -21,567 30,385 30,385
  -13,400 -13,400 -14,744 -14,744 36,949 36,949
  8,171 8,171 15,719 15,719 63,578 63,578
  38,207 38,207 57,986 57,986 112,643 112,643
  50,460 50,460 87,725 87,725 202,081 202,081
  54,920 54,920 93,350 93,350 236,317 236,317
  29,339 29,339 67,664 67,664 218,810 218,810
  29,958 29,958 72,943 72,943 222,848 222,848
  14,561 14,561 64,300 64,300 233,993 233,993
 

Solvency and External Finance

  Before After Before After Before After
Debt to Asset Ratio 61.4% 61.4% 41% 41% 33% 33%

Increase / Decrease Borowings

53,854 53,854 -61,376 -61,376 -159,931 -159,931
 

Working Capital and Liquidity

  Before After Before After Before After

Net Current Assets: Working Capital

63,022 63,022 136,326 136,326 325,747 325,747
Quick Ratio (Short Term Liquidity) 0.6 0.6 0.89 0.89 1.86 1.86
 

Profit & Loss  and Equity

  Before After Before After Before After

Retained Profits C / Fwd

100,768 100,768 181,311 181,311 386,890 386,890

Net Assets / Equity C / Fwd

105,768 105,768 186,311 186,311 391,890 391,890

Reward for Enterprise

When declaring a year end dividend and when to pay it most SME s must first establish what it will do to liquidity, cash flow and solvency. Working with Figurewizard this calculator enables you to plan what will be sustainable.

Diidends cannot be declared on the expectation of profits alone no matter how reasonable that expectation may be. The profits have to be indisputably present in the company's balance sheet beforehand.

Using the What-If Calculator for Liquidity and Cash Flow.

You should always be careful when declaring dividends. For example if Figurewizard's dividend calculator tells you that for some months' the bank plus undrawn and available finance will be returning deficits, action must be taken to eliminate them.

Apart from changing the value of dividends you have three options to resolve forecast cash flow deficits; budgeting, financing or both. For financing you can update the bank overdraft and / or select factoring on this page but for more comprehensive planning Figurewizard makes it possible to plan with all three using the unique Interactive What-If Calculator. What follows describes how to do this.

1 Enter the proposed value for year-end dividend(s)
2 Select month payable - 1st month means the dividend is to be paid when declared. 
3 If in "after" any month's Bank and undrawn financing are in deficit, select "Apply Changes" and go to the What-If Calculator
4 Note: Applying changes updates all of the forecasts to include the value of the dividends.
5 In What-If make changes to overheads, assets and financing until Min Bank + undrawn (under Cash, Bank and Solvency) is zero or better.


The What-If calculator allows you to change youur original forecast values for profit margins, overheads, investment and all kinds of financing including bank overdraft, fixed term loans, asset finance and factoring / supply chain financing.

The key result when you are making changes will be "Min Bank and Undrawn Financing" under "Cash Bank and Solvency". Your target will be to see that is greater than zero. If your changes can't do that and you have no other options then you must reconsider the size of the dividend.

How the Dividend Calculator's Figures are Produced

Using Figurewizard, the first step is to produce a full set of forecasts. That is actually a lot simpler than it sounds.

The forecasts are produced from nothing more than a user's own forecast figures for for sales, margins, overheads, financial arrangements and investments. Entering those figures will be a matter of minutes.

That is all our system needs because it then does all of the work to produce the forcasts, including calculating and applying VAT, capital allowances and corporation tax. No further input is called for from a user.

This calculator and all of the sample forecasts on this site are working examples, based on a single set of such figures.

Dividends as a Current Liability

A dividend is charged as a current liability to the balance sheet from the day it is declared.

As a result working capital (net current assets) is reduced by the value of the dividend on the date of declaration, not on the date payable which may be sometime in the future. Similarly a shareholder's liability for personal tax on a dividend arises from the date of declaration not the date of payment.

Dividends and Director's Responsibilities

Great care should always be exercised when declaring dividends. Forecasting and planning their consequences on the future financial position of the business is important to avoid possible breaches of company law.

Under section 174 (1) of the Companies act directors have a stautory duty to exercise reasonable "care, skill and diligence". Declaring dividends that put future cash flow solvecy at risk is a classic example of not exercising care, skill and diligence.

In the event of a company becoming insolvent it becomes possible for directors' responsibilities under the Companies act to change. If insolvency remains unaddressed those responsibilities shift to acting in the best interests of creditors under the Insolvency act.

In the event of the company failing there might then be a risk of personal liabilty for part or in extreme cases even all creditor claims regardless of limited liability. Ignorance of the law is no defence.

Legal and Illegal Dividends

The Companies act 2006 sec. 830 (1) states: A company may only make a distribution out of "profits available for the purpose". That means retained profits as recognised in the balance sheet.

Dividends that fail to comply with this requirement are deemed to be illegal and their declaration as "ultra virus" meaning that by declaring them directors have acted beyond their powers. That would result either in an order to repay the dividend or for its value to be assigned to directors' loan accounts and subject to a corporation tax charge.

HMRC's options don't stop there though as it is also possible for them to take the view that illegal dividends should be treated as salary, making them chargeable for both income tax and NI plus employer's contribution for NI.

Forecasting the Consequences of Dividends

Despite all of the above, the process of declaring dividends is not really a minefield as long as at the time of declaration their consequences on future liquidity and cash flows have been taken into account and resolved if need be.

That is what this dividend forecaster and the What-If Calculator are for and why they are recommended to you and your advisors.

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