Surplus and Deficit
Introduction
In the surplus and deficit menu you can alter how the surplus and deficit of your clients cashflow is treated. This menu can be located by navigating to Modelling > Cashflow & Capital > Inputs - Surplus and Deficit.
This is an important step in ensuring accurating modelling for your client. If surplus funds are not allocated correctly, it assumes your client spends this money rather than potentially investing for their future. And if a deficit is not allocated you are not correctly capturing periods of time where your client may be required to draw down funds in order to fund their lifestyle.
Cashflow
Before making changes to your clients surplus and deficit, you can view whether your client is in surplus or deficit in any given year by navigating to Modelling > Cashflow & Capital > Outputs - Cashflow.
In the example below, you can see that after the total yearly income less expenses there is a surplus of $34,039 in the first year with surplus for all remaining years other than the fourth year where there is a deficit of $33,183. You can also see that currently $0 funds are redirected, meaning all of this surplus/deficit is unaccounted for.
Surplus and Deficit
The Surplus and Deficit page will appear in C&C similar to the below screenshot.
You have the ability to make changes to surplus (on the left) and deficit (on the right). As you can see, currently 100% is left to allocate for both surplus and deficit.
In the top right corner you can select whether your client will retain a $10,000 cash reserve during the modelling. This prevents any deficit from reducing the Cash Account to below $10,000.
Surplus
If your client has a surplus, you can allocate this as a percentage to superannuation accounts, investments, loans, cash accounts or other entities. You can press + Add new range to add additional time periods, if you wish to modify where the allocation of surplus goes over different time periods. You can then determine the start and end period for these ranges. As you can see below, 100% of the surplus is now allocated which has also been updated in the cashflow table.
You also have the Overflow allocated to drop down option at the bottom. This allows you to select which account will receive any potential overflow of surplus. Overflow could occur if (1) you do not allocate the full 100% in the fields above and leave a certain percentage left over which will be swept up here, or (2) when you may hit a certain maximum amount on accounts you are directing surplus to, for example you are using all surplus to pay down a loan and at somepoint in the year it is fully paid down you can then redirect the leftover to another account.
Deficit
The functionality of the deficit fields work similar to the surplus fields. For any year your client experiences a deficit, you are able to determine which asset your client will draw from to meet their cashflow needs. This can be done by adding percentages to the appropriate accounts.
You can select + Add new range to add additional fields for different start and end periods, and then allocate where to draw funds from to fund the deficit.
The overflow allocated to field works in the same way as surplus, however as we are drawing funds out of assets this means that you will continue to draw from a specific asset until it's balance has reached zero and then you will elect to draw down from the next asset in line, and so on. In certain situations this may be more suitable for deficit management rather than the percentage allocation, as it allows you to control priority of assets rather than a percentage draw down from many.
In the example below you can see that total allocated is equal to 0%, however the overflow allocated will draw down the following assets with the first prioritised until its balance is equal to $0, then draw from the next asset. It will follow the order of Cash Account > Cash/Term Deposit > Australian Shares.
Navigating to Cashflow you can see that the fourth year deficit is now accounted for.
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