Cash Flow

Posted by PITHOCRATES - March 24th, 2014

Economics 101

New Complex and Confusing Regulatory Policies require Additional Accounting and Legal Fees to Comply

There have been demonstrations  to raise the minimum wage.  President Obama even called for Congress to raise the federal minimum wage to $10.10 an hour.  He also wants employers to pay salaried people overtime.  There have been demands for paid family leave (paying people for not working).  Unions want to organize businesses.  To get employers to pay union wages.  Provide union health care packages.  And union pensions.  Obamacare has made costly health insurance mandatory for all employees working 30 hours or more a week.

Environmental regulations have increased energy costs for businesses.  Sexual harassment training, safety training, on-the-job training (even people leaving college have to be trained before they are useful to many employers), etc., raise costs for businesses.  New financial reporting requirements require additional accounting fees to sort through.  New complex and confusing regulatory policies require additional legal fees to sort through them and comply.

With each payroll an employer has to pay state unemployment tax.  Federal unemployment tax.  Social Security tax (half of it withheld from each employee’s paycheck and half out of their pocket).  Medicare tax.  And workers’ compensation insurance.  Then there’s health insurance.  Vehicle insurance.  Sales tax.  Use tax.  Real property tax.  Personal property tax.  Licenses.  Fees.  Dues.  Office supplies.  Utilities.  Postage.  High speed Internet.  Tech support to thwart Internet attacks.  Coffee.  Snow removal.  Landscaping.  Etc.  And, of course, the labor, material, equipment and direct expenses used to produce sales.

The Problem with Guaranteed Work Hours is that there is no such thing as Guaranteed Sales

The worst economic recovery since that following the Great Depression has created a dearth of full-time jobs.  In large part due to Obamacare.  As some employers struggling in the worst economic recovery since that following the Great Depression can’t afford to offer their full-time employees health insurance.  So they’re not hiring full-time employees.  And are pushing full-time employees to part-time.  Because they can’t afford to add anymore overhead costs.  Which is hurting a lot of people who are having their own problems trying to make ends meet in the worst economic recovery since that following the Great Depression.  Especially part-time workers.

Now there is a new push by those on the left to make employers give a 21-day notice for work schedules for part time and ‘on call’ workers.  And to guarantee them at least 20 hours a week.  Things that are just impossible to do in many small retail businesses.  As anyone who has ever worked in a small retail business can attest to.  You can schedule people to week 3 weeks in advance but what do you do when they don’t show up for work?  Which happens.  A lot.  Especially when the weather is nice.  Or on a Saturday or Sunday morning.  As some people party so much on Friday and Saturday night that they are just too hung over to go to work.  Normally you call someone else to take their shift.  Then reschedule the rest of the week.  So you don’t give too many hours to the person who filled in.  In part to keep them under 30 hours to avoid the Obamacare penalty.  But also because the other workers will get mad if that person gets more hours than they did.

The problem with guaranteed work hours is that there is no such thing as guaranteed sales.  If you schedule 5 workers 3 weeks in advance and a blizzard paralyzes the city you may not have 5 workers worth of sales.  Because people are staying home.  And if no one is coming through your doors you’re not going to want to pay 5 people to stand around and do nothing.  For with no sales where is the money going to come from to pay these workers?  Either out of the business owner’s personal bank account.  Or they will have to borrow money.  It is easy to say we should guarantee workers a minimum number of work hours.  But should a business owner have to lose money so they can?  For contrary to popular belief, business owners are not all billionaires with money to burn.  Instead, they are people losing sleep over something called cash flow.

Cash Flow is everything to a Small Business Owner because it takes Cash to pay all of their Bills

To understand cash flow imagine a large bucket full of holes.  You pour water in it and it leaks right out.  That water leaking out is expenses.  The cost of doing business (see all of those costs above).  A business owner has to keep that bucket from running out of water.  And there is only one way to do it.  By pouring new water into the bucket to replace the water leaking out.  That new water is sales revenue.  What customers pay them for their products and/or services.  For a business to remain in business they must keep water in that bucket.  For if it runs out of water they can’t pay all of their expenses.  They’ll become insolvent.  And may have no choice but to file bankruptcy.  At which point they’ll have to get a job working for someone else.

Cash flow is everything to a small business owner.  Because it takes cash to pay all of their bills.  Payroll, insurance, taxes, etc.  None of which they can NOT pay.  For if they do NOT pay these bills their employees will quit.  Their insurers will cancel their policies.  And the taxman will pay them a visit.  Which will be very, very unpleasant.  So small business owners have to make sure that at least the same amount of water is going into the bucket that is draining out of the bucket to pay their bills.  And they have to make sure more water is entering the bucket than is draining out of the bucket to pay themselves.  And to grow their business.

This is why business owners don’t want to hire full-time people now.  Because full-time people require a lot of cash (wages/salary, payroll taxes, insurances, training, etc.).  They’re nervous.  For they don’t know what next will come out of the Obama administration that will require additional cash.  For every time they want to make life better for the workers (a higher minimum wage, overtime for salaried employees, guaranteed hours, etc.) it takes more cash.  Which comes from sales.  And if sales are down future cash flow into the business will also be down.  Leaving less available for all of those holes in the bucket.  So they guard their cash closely.  And are very wary of incurring any new cash obligations.  Lest they run out of cash.  And have to file bankruptcy.  Which is why they lose sleep over cash flow.  Especially now during the worst economic recovery since that following the Great Depression.

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