29 April 2020

Cash-flow planning: advantageous for your private assets, too!

A previous article explained the importance of such cash-flow planning for the company. Its importance cannot be underestimated on account of the role that companies (however large or small) play as motors of our economy. As an entrepreneur you reckon with the future – factoring in not only the opportunities but also the risks.

What is important for the company is just as important for the entrepreneur himself. The entrepreneur, and by extension also non-entrepreneurs, retired persons, investors, etc, are well advised to have a sound cash-flow planning, with the necessary buffers, in the private sphere, too.

In the current turbulent times it can be important to gain a good insight into your personal cash-flow planning. After all there are a whole host of factors currently converging that could possibly have an impact on your personal finances. We set these out clearly and concisely, one by one.

Income from earnings

Your income from earnings could be affected. For a lot of entrepreneurs the individual’s own company is often his or her own personal brainchild on account of which the entrepreneur will, if necessary, give up or reduce his own pay for the wellbeing of the business.

Stock markets

The stock markets are unstable, with a few winners but in the main a large number of losers. And there are major doubts as to when they are likely to return to their normal levels.

The fall in the stock markets can affect you in your private portfolio. The invested capital (or part of it) might have been something you needed in the short term or had at least counted on.

Value of your own company

The value of your own company can also be hit hard. If you are active as an entrepreneur you may have to earmark resources to shore up your business.

If you were on the verge of selling an asset or a holding (in the coming years) you may not secure the price you had hoped for, and this could have an impact on your envisaged scenario of living off your investments.

Dividends

Dividends are under considerable pressure. These might constitute income you had counted on, since for entrepreneurs a dividend can form part of the pay policy. An appraisal will have to be made of the extent to which these dividends can still be distributed, if such is the wish. Indeed in this respect attention should be paid to the new company law that makes provision, in respect of companies with no capital, for a double distribution test, the liquidity test of which will now become a difficult feat to pull off.

After all, this law stipulates that the company, “according to reasonably foreseeable developments, will, after distribution, continue to be in a position to settle its debts as and when these become due and payable over a period of a least twelve months”. When the law came into force it was not entirely clear what was meant by “reasonably foreseeable developments”. The coronavirus crisis and the measures that have been taken render the interpretation of this definition all the more difficult.

For investors or persons of independent means, dividends may be vital income. One can think of the innumerable gifts subject to usufruct where the income derived therefrom has to cover a part of the annual consumption.

Rental income

Rental income is becoming more uncertain, with doubts arising as to whether tenants will be able to pay their rent. You yourself might still be paying a mortgage on an immovable property you are renting out. 

The coronavirus crisis is a wake-up call for people to look into whether their private cash-flow planning incorporates enough of a buffer.

An in-depth cash-flow analysis affords you an insight into your liquid assets at any time in your life. With the financial projections in VGD Pax Familia we can detect possible shortfalls in time. The projections also make it clear whether your future plans are in fact realistic in light of your financial situation.

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Estate Planning

Do you have any further questions about this? Then be sure to contact our advisors! Let's talk!

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