Tuesday, October 21, 2008

Surviving on credit

I don't know about you, but I was surprised - no, the word is shocked - when I read that without credit (aka debt), many, many businesses would fail. That many small businesses depended on getting regular loans to meet their payroll.

Is this the way America does business? I guess so... in my apparently way out of touch, feeble old mind, if you can't afford to pay your help, you don't hire them. If you have to borrow money to meet basic expenses (materials, workers, etc.) you're not a success. You're a failure.

I can't help but wonder how many failing businesses have been parading around as successes? Maybe we'll find out.

7 comments:

  1. My hubby is part of a small family business. We use credit primarily to ease cash flow, not make payroll.We have to pay all our accounts in 30 days (orCOD if we're behind) Our bigger contracts have been paying us on average at 60-90 days. It is depressing how easy it is to get behind the eight ball these days especially when your biggest customers have you over a barrel and know it. I won't even go into the costs of health care. A lot of worry at my house letely.

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  2. I definitely understand your position. This could be an argument for "trickle down," though. If your bigger accounts paid on time (e.g., within 30 days or sooner), would you never need to use credit to meet your obligations?

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  3. My parents had a small family business in the 60's and 70's and that was normal for them. They would get a contract to do a job and they would have to complete different % of the job for the larger company to pay them. When a small business works on a small profit, thier just isn't alot of wiggle room.

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  4. Pat, I am with you all the way on this one! I would think any successful business has operating capitol, and I don't mean a loan from a bank. My son in law has his own business, and they do not depend on bank loans to operate. Seems all this economy operates on is credit. Take that away, and everything stands still. I guess your wealth depends on what you owe, not what you own (outright, that is, not financed). Makes no sense to me!

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  5. "Take that away, and everything stands still."

    Or it falls flat. It seems to be true that wealth is measured in terms of how much one can borrow. Makes no sense to me either.

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  6. I too was very surprised by this! As a former small (very small) business owner, I would've never considered operating on credit and I'm sorry for those who built their business on that model. It seems a shame that so many businesses got caught up in the excess of debt and credit "scam" of the last 10 or 15 years.

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  7. I'm an accountant in California...the land of big debt. I see A LOT of small and mid-sized businesses that finance their operations with debt. Lots of debt. We are a financially unhealthy society in every respect. What our current government is doing now with the stimulus spending and bailouts is setting a horible example for everyone. Spending more that we take in simply doesn't work and this "I want it now and I deserve it" attitute has got to cease. I see that attitued a lot here in the Napa Valley because for these wineries, it' all about image. Over spending is over spending, whether it takes place in a business or at home. It's sad and I simply refuse to live that way.

    I really enjoy this blog BTW:)

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