I have long held a view that "if you want to know what is going on in the real business world, not the media and political reports, look at your own situation". Following a very good year last year and an extremely optimistic start to 2014 we had the inevitable higher tax bill for April to pay and a tight cash flow situation from then on. I have recently had indications that my customers have suffered exactly the same circumstance. Very good 2013, and optimistic first 5 months of 2014. They now see cash flow problems in June with delays into July. Exactly my own opinion. How long before the politicians and media say the same thing? I also noted that the dollar suddenly weakened last week.
That's not a very good way of looking at things. Different regions have different economic behavior. For instance, in the summer, Florida has an influx of tourists. And as a subset of Florida, the town I live in has an influx of students during the fall. Both of which brings money into the local and state economies. If I am a home builder or perhaps another private business in unrelated sectors maybe I'm not doing as well as every one else in the economy. Politicians are more inclined to talk when the aggregate job market is suffering losses instead of gains.
I tend to agree. But in the absence of honest reporting by the business media, what can you be left with. It does tend to fit as a generality though.
Hard to say. I have a job where the business asked me if it was okay to pay me in two payments beginning next month instead of all at once this month because the owner has been whacked with lots of bills like his daughter's wedding, son's graduation, replacing business equipment unexpectedly. I told him sure. I have an employee going on vacation this week which will be an expense with no revenue associated and I recently wrote off a pretty sizable account because the person lost their business, cannot afford to pay me, and I see no point throwing money down the hole of trying to collect it. It isn't a cash flow problem though because I retain excess cash from January to December, prepay as many of the following first quarter bills as I can, and then take my yearly nut.
I understand you are a nice guy and taking a hit because you planned that you could. But this is a cash flow problem that you are able to take because you prepared for it, the others that caused this didn't prepare. I ask, why should I take on someone elses problems and I don't. I have enough of my own. I think if you didn't carry so much money in reserve you would see that you really did have a cash flow problem that you have disguised through your selfless good nature. Maybe that reserve money is not giving you the return as it should.
Cash flow is often feast or famine in business in my experience. i carry a lot in reserve because experience tells me to carry a lot in reserve. If I didn't get royally screwed in my taxes by carrying cash over from year to year, I would have an even bigger reserve and just carry it over years at a time. Likewise, people being late or having to write-off accounts is also just part of doing business. I am not being a nice guy--just a realistic one. The guy who is going to be late generates a lot of business for us and the person against whom it would be pointless to pursue the debt will be blacklisted by me, but his insolvency will not be fixed by my wasting time, energy and money pursuing collecting an uncollectable debt. I am not going to get all bent of of shape about these things--it is wasted energy. Risk involves, you know, risk.
A realist, I see, that plans for the likely downside that others inflict on your good planning. Thing is you can do this with your own business, but a corporate entity will probably take your spare cash away to 'corporate ' so that you can't do what you so correctly do, IMHO. But I stick with my initial premise when cash has not been built up the way you have done it. I don't have that many customers but have learnt to recognize the signs in what people say when they are normally good customers. Like 2 customers I have, both good businessmen, both with million dollar businesses who, like you and me, have cash flow issues around tax time and ask for delays in projects. It's not that the work was not good, they just have a short terms cash flow problem. You are not immune from that, as many people aren't. You just have had the time and fortune to be able to build your own buffer against such eventualities. I agree with you that your way is the way to do it, if you can. It's not always possible. As you may know well, more people go out of business for cash flow issues than because they are not profitable or have a good business. At least that is what they say in UK.
"Cash flow problem" is too generic. It is like categorizing everybody who dies as having a "blood flow problem" IMO. As for small businesses, the two big "cash flow" problems I see most often are 1) They are under-capitalized and did not have enough cash to keep the doors open the day they opened their doors unless the business was a run away success (as they seldom are); and/or 2) The owner subscribes to that totally defective philosophy that too many people preach that "you have to pay yourself first" when a good business owner pays themselves last if they do not want to have a red profit-loss statement. I couldn't even tell you how many people I have seen blow their savings opening a restaurant in my city thinking because people like their cooking at home, everybody will pay top dollar and line up at the door if they went into business. Most barely make it the first month or two because they are bankrupt before most people even know they exist.
Sir, I agree totally. You seem to have it right and sensibly. But then, I would say that's why you stay in business and why it is wrong and very naive for Obama and his cohorts to think everyone can start and run their own business. The majority will fail. The good thing about USA is that people can give it a second go and hopefully learn enough lessons from the first failure that they might succeed by the 3rd go around. I had a neighbor in Uk who was quite successful in buying up defunct renovated hotels. He told me that he didn't buy until the specific hotel or hotel business had gone bankrupt 3 times, then you could buy the assets cheep enough to be viable. He was a wealthy and successful investor when he died in his 80's. Nice guy too, except when you were negotiating with him, I was just his next door neighbour.
The same applies to retail shops that don't go into the black until the Christmas season. The cash they need for the first 9 months of next year, is taxed as profits. Or, the money a company saves to buy a piece of capital equipment, that is depreciated over the next 5 to 30 years, is profit. Their (and your) option is to open a line of credit (borrowed money isn't profit). Then you can choose between debt or taxes. Another gift of complexity and cost from the government. Being the tax any business "pays", is actually paid by their customer, I would eliminate all tax on business, and business transactions. Companies could make decisions based on their business value, instead of their tax ramifications. The cost of products made in the US, should be cheaper on the world market, increasing exports.
Lines of credit gum up my personal credit. Other than mortgages, I stay away from anything credit wise other than ship it with an invoice and I will pay it the day it comes type supplier deals. I don't even have company credit cards any more--I just use mine and reimburse myself if forced to. My primary business does not pay a nickle of interest to anybody.
That is the right way to go. We need government to stop subsidizing lending institutions via the tax code.
That's how I've always run my little business. We buy new equipment when there's extra cash in the checking account. One thing I treasure more than cash is a good night's sleep.
I think we should say. Some of those profits are taxes, i.e much less than 50% not all as your post implies. Personally I believe in paying fair taxes. It's what keeps the country going. Having said that I am beginning to see that there are some very unfair and unreasonable taxes in USA now and the tax system is way too complicated made worse by non tax lobby groups that always seems to want something exempted. Thus the system gets more and more complicated with each additional exemption. I think I am beginning to favor a Value Added Tax on sales with much lower personal or company taxes. Then you can decide to buy or not. Since I have been used to a much simpler system in UK I pay a 'hidden tax' here i.e. reputable accounting firm to protect me from my own ignorance. But even UK got much more complicated when the Labor party was in power under Tony Blair for so long. Now the Conservative party is trying to unwind them I think, but they were saddled with a huge burden of misguided labor spending plans.
Now today we hear that the US dollar has weakened mostly because of poor US trade and GDP figures and is blamed on bad weather. But is this really the truth? I don't think so although it's a good story and some of "we the gullible people" might believe it. I just don't think the economy is anywhere near so good as politicians of right or left would have us believe. After all we live on debt and other peoples money. Then who would believe anyone who left such a mess behind in Iraq and maybe did the same in Afghanistan when the truth gets out. It's time for US politicians to stop having Empirical notions and look after ourselves. But maybe Obama has more friends overseas than he does at home and so that's why he keeps going there. Soon they'll get fed up of the rhetoric, just as I have done.
What? Do you have some outstanding letters of credit with companies in the EU that might cash them in today causing you to get 0.02% less for your money? The reality of the economy is that Obama has nothing to do with it and the reality of exchange rates is that they are decided by speculators since less than 0.001% of the money that changes hands on currency exchanges on any given day is actually used to pay for the trade of goods or services across borders.
Actually this has been good for me. I have income derived in UK which when converted to US gives me a significant gain of about 8.6% over about 18 months. This money I then spend in the US economy. Having said that the exchange rate on average over the 16 years I have been here is about constant. It has been way above current levels and way below too. The dollar, IMO, though is still overvalued by maybe 5-10% and has been for a long time. Now that would reduce Chinese imports and bring jobs back to US as well as make US products more competitive in world markets.
I didn't define the tax rate on "profits", I stated that capital equipment purchases from saving was taxed as profits, while purchased with credit was not. Our tax policies subsidizes lenders. What specifically is done with tax money to "keep the country going"? Is everything the government spends money on good for the country? Given a choice of tax methods, I prefer VAT, only at the consumer level. My bigger concern is our borrowing from the future to buy votes today by funding fund social programs. Borrowing can't go on forever, and when it is forced to stop, taxes will go up, but not enough to support those reliant on social spending. It will be a mess - but we keep kicking that can of worms down the street.
I agree with you on borrowing from the future etc. However, sometimes borrowing is good to take advantage of a business situation now and the psyback is obvious. Not always true with the government.
For government, national ROI comes from necessary war and necessary infrastructure. Throwing money at infrastructure, especially when mandating "prevailing wage", is far more payback to unions, than benefit to the country.
Government spending on infrastructure pays huge dividends. The interstate highway system has returned over $1000 in tax revenue for every 1$ spent over the last 60 years. The increased tax revenue is due to new economic activity along and around the highways, activity that would have otherwise not occurred. Another $100 can be attributed just to transportation efficiency increases. Infrastructure spending produces massive revenue gains over the long term. It is the form of government spending that benefits the nation the most.
I agree, so why don't we spend money on the maintenance of that infrastructure to keep that business momentum. Why won't our elected politicians spend the money needed to repair our seriously decaying road system. We need to spend that money, before our roads need to be replaced completely.
