Business - Cash Flow, "Cash", Savings

[gcb]

I'll preface this by stating that I have never run a business; I wouldn't know where to start with a P&L statement.

Why are businesses laying off people so quickly during the Coronavirus? For most US companies, this event has only impacted their business over the past month. Do companies (big and small) not have "cash" to weather them through a bad month, bad quarter, etc? How much is normal for a company to have available?

As an individual, i try to have enough emergency savings where we can scrape by and make any necessary payments for 3-6 months. Why does it differ so much for companies?

 

[Bart Giamatti]

Companies lever up in a way we don't as individuals.

 

[wct097]

Combination of things I expect. If your business is directly interacting with the public in a manner for which you've been shut down for an indeterminate amount of time or are the supply chain for those businesses, why would you keep paying your biggest expense running when your business isn't?

Outside of manufacturing, most businesses have payroll as their top liability.

 

[gcb]

So are most businesses truly this "fragile"?

 

[wct097]

So are most businesses truly this "fragile"?

Yeah, I'd say so, especially on the smaller end

 

[Jerk!]

a lot of s corps empty the coffers to the shareholders at the end of the year, on top of that having revenue doenst mean you have cash on hand, if you have a lot in A/R. We haven't laid anyone off yet. Restuarants and bars have no choice, no customers no need for employees, so you lay them off so they can collect unemployment.

 

[Bart Giamatti]

So are most businesses truly this "fragile"?

I'd say it breaks down similar by sector. Certain industries are at different stages. Maybe you're a retailer holding on for dear life anyway, JCP style. Maybe you're a car dealer paying interest on an inventory that's not selling, while also getting no service income.

Capitalist societies are built on credit & risk. If the shit was easy, everyone would do it.

 

[wct097]

Competition = lower margins = very sensitive to paying large expenses like payroll when there is zero or near zero revenue

 

[Bart Giamatti]

Consider a seasonal business. A bad few months is actually a bad year.

& what's management's risk tolerance for going broke? Just bleed the cash til it runs out, or close altogether while there's capital left?

Cash. Damn I hate the word. You guys can imagine I talk finance & car deals IRL. Nothing worse than someone bragging of paying 'cash' on a car deal.

 

[wct097]

Put it like this. The biggest cost of doing business is usually labor. According to the Google, labor costs can account for as much as 70% of total business costs.

To put it in personal terms, most people's biggest expense is your housing expense. It would be akin to losing your job and your wife kicking you out of your house. Why would you continue paying the house payment, electricity, insurance, and yard maintenance if you didn't have money coming in and can't use the property? Even if you have 6 months of "cash" on hand to cover it... why would you? It doesn't make you "fragile" to not pay it. It makes you sensible. Now you may feel some responsibility to your soon to be ex, your kids that still live with her, the bank, etc.... but it doesn't make it a savvy financial decision to continue paying it indefinitely.

 

[BlackDak]

I'll preface this by stating that I have never run a business; I wouldn't know where to start with a P&L statement.

Why are businesses laying off people so quickly during the Coronavirus? For most US companies, this event has only impacted their business over the past month. Do companies (big and small) not have "cash" to weather them through a bad month, bad quarter, etc? How much is normal for a company to have available?

As an individual, i try to have enough emergency savings where we can scrape by and make any necessary payments for 3-6 months. Why does it differ so much for companies?

Is it different? With your savings, if you lost your job, would you immediately start shedding expenses? Cancelling cable, gym memberships, eliminating recreational activities, tighten food budget, etc. anything nonessential to extend your savings as long as possible?

I see it as companies are just doing the same. Eliminating things not supporting revenue generation.


Something I recently learned, you can submit partial employment claims for forced reduction in work hours. Don't know if that is included in the official employment claims number or not.

 

[FinlayZJ]

We're an S-Corp. At the end of each Calendar year, all money is distributed. Any profit left over is flow through to the share holders. We have no savings/can't really have savings based on S-Corp structure.

The 1st quarter of every year sucks because of this. We usually go in to our line of credit. In our field, billings are usually 90-120 delayed from deliverables. Last week we started hounding clients for money because we hadn't received any checks for almost 3 weeks. They usually roll in every day.

Here's how it quickly ramped up in the last month:

2019 Revenue: ~7.5 Million
Average money owed at any point during the year: ~2.0 Million
Current outstanding billings not paid: >3.1 Million

Most of our clients immediately started holding on to their money once there was the first glimmer of trouble. Kind of hard for us to pay employees when we don't have the money. We did the work. Just have nothing to show for it. We've been hounding clients since last week to pay us.

I'd wager at some point in the near future all the partners will go to $0.00 salary so that we can keep staff intact. If that doesn't work then we wholesale cut pay or start lay offs.

On a side note, with unemployment going to $1,000 a week, some 'friendly' competitors have already started layoffs so they can get the UE benefits and keep company books in good shape and then hire them back once this is over. .Gov basically incentivized layoffs.

 

[Al Johnson]

If unemployment is 1K a week, it's quite a bit more than I ever made working.

 

[wct097]

If unemployment is 1K a week, it's quite a bit more than I ever made working.

No shit. That's a crazy level of UE.

 

[whiskey tango]

That’s only until the end of July from what I’ve heard.

 

[themonk]

That’s only until the end of July from what I’ve heard.

They'll probably extend it a bit. Pelosi and McConnell are already bickering about the next stimulus.

 

[Jerk!]

We're an S-Corp. At the end of each Calendar year, all money is distributed. Any profit left over is flow through to the share holders. We have no savings/can't really have savings based on S-Corp structure.

The 1st quarter of every year sucks because of this. We usually go in to our line of credit. In our field, billings are usually 90-120 delayed from deliverables. Last week we started hounding clients for money because we hadn't received any checks for almost 3 weeks. They usually roll in every day.

Here's how it quickly ramped up in the last month:

2019 Revenue: ~7.5 Million
Average money owed at any point during the year: ~2.0 Million
Current outstanding billings not paid: >3.1 Million

Most of our clients immediately started holding on to their money once there was the first glimmer of trouble. Kind of hard for us to pay employees when we don't have the money. We did the work. Just have nothing to show for it. We've been hounding clients since last week to pay us.

I'd wager at some point in the near future all the partners will go to $0.00 salary so that we can keep staff intact. If that doesn't work then we wholesale cut pay or start lay offs.

On a side note, with unemployment going to $1,000 a week, some 'friendly' competitors have already started layoffs so they can get the UE benefits and keep company books in good shape and then hire them back once this is over. .Gov basically incentivized layoffs.

We're an s corp as well and while we pay "dividends" of excess profit at the end of the year to shareholders, I dont think there is anytying from preventing us holding cash, and we add to retained earnings every year.

 

[FinlayZJ]

We're an s corp as well and while we pay "dividends" of excess profit at the end of the year to shareholders, I dont think there is anytying from preventing us holding cash, and we add to retained earnings every year.

Could be our size or income level, but the accountant basically said anything that doesn't flow through to shareholders the IRS will take a big chunk of. Basically to the point it made 'company' savings not worth it. Guess I should look in to it more.

 

[FinlayZJ]

Account funded today. My ~40 co-workers have no idea what this just saved them from.

 

[wct097]

Could be our size or income level, but the accountant basically said anything that doesn't flow through to shareholders the IRS will take a big chunk of. Basically to the point it made 'company' savings not worth it. Guess I should look in to it more.

Not sure I follow the logic. The IRS takes the same chunk either way.