How to receive dividends regularly and without harm to the company
If the company makes a profit, then the owner of the business can receive dividends. But it is often not clear how much you can withdraw and how to do it correctly so that all the money does not suddenly run out.
At Boring Finance, we manage to do things in such a way that it is not scary. Today I will tell you step by step how the regular payment of dividends to our owners, Serezha Krasnov and Sasha Afanasiev, is organized.
1. We consider net profit
Dividends are paid out of the company’s net profit, so be sure to calculate it. We need to make sure that there is a net profit at all – and, if so, how much it turned out. For this there is a profit and loss statement – OPiU.
We had a situation where in January the net profit was with a minus, and then no dividends were accrued.
Some entrepreneurs don’t look at profit. They see that there is money in the cash register and they take it at random, as much as they need. For the lucky ones, this tactic works, but sooner or later it leads to a cash gap for ordinary people. Today there is a lot of money at the box office, and tomorrow everyone needs to pay: salaries to employees, a supplier for goods, a landlord for an office, a tax to the budget. If you withdraw more than there is net profit, then you can fall into a cash gap.
2. Choose a dividend strategy
It is not worth taking all the net profit for dividends; it is better to spend part of the money on business development and reserves. It is necessary to decide how much net profit the owners take, and how much remains in the company.
In our NF, we determined that 30% of net profit goes to dividends, and the remaining 70% goes to the development of the company.
Here are three strategies that I recommend – choose what suits you.
For a business that is just getting on its feet → 30% for dividends, and 70% for the company.
The business is confidently on its feet, but there is still a lot to be done → we divide the profit in half: 50% for the owner, 50% for development.
We work at maximum speed, all processes are established and we use resources and knowledge to the fullest → 70% to the owner, 30% to the company.
3. Determine how often we will pay
We pay dividends once a week, but in general you can pay as you like: once a month, quarter, year. Choose whichever suits you best.
It happens with seasonal or project companies that in one month the net profit is huge, and in the next two months it is almost zero or even negative. But the quarterly net profit is positive. And in this case, paying dividends once a week will not work, you need to choose a longer period – a quarter, for example.
In general, a quarter is a good period to practice with the payment of dividends. If everything goes well, you can pay more often.
4. Making a system of funds
Net income can be distributed to funds. These are several accounts into which money is deposited for different purposes. In order not to get confused with where, how much and when to deduct, you need to write down the rules for replenishing funds. Our net profit is distributed to the financial cushion, top bonuses, company development, teams and, of course, dividends.
We have 30% goes to the owners, the rest goes to the company.
5. Opening an account for dividends
It is better to open a separate bank account for the dividend fund, now it can be done in 5 minutes. In some companies, funds are made virtual, that is, they exist only in tablets, there are no separate accounts. In other words, there is an account with 5 million, and you have to keep in mind that 500 thousand of this is set aside just in case, another 500 thousand is for the development of the company, and 350 is for dividends. So it is very easy to get confused and spend the money that is set aside. And then there are no dividends.
We have several accounts for different purposes, including dividends.
6. Calculate how much money will go to funds
Profit and money are two different things: money is money, and profit is obligations fulfilled.
Because of this paradox, you can’t just take and pay yourself 30% of the profits at once. It may be that the company has earned a million in a month, and you are entitled to 300 thousand rubles, but there are only 200 thousand in the cash register, of which you still have to pay salaries.
And what about dividends then? You need to save money when you have it! That is, to transfer a small percentage of all receipts from clients to the dividend fund. For example, now we in the NF transfer 5% of all proceeds to the dividend account every week. How to do it smartly?
Calculate the net profit margin: divide it by revenue and multiply by 100%. For example, if the profit is 200 thousand rubles with a revenue of a million, then the profitability will be 20%. This means that only 20% of your revenue becomes net income.
We set aside in funds a percentage of income equal to the net profit margin. We roughly know that this is our profit, which means that the rest of the money will be enough to cover expenses.
We distribute money. Having allocated 20% of the million revenue, we get 200,000 rubles to replenish the funds. Then we distribute this amount among funds – 20% each for the development of the team, companies and reserves, 10% for bonuses to managers and 30% for dividends.