^ @Bluegrasscard

 

Most of those costs you list above are gone too. Don't small businesses keep a cash reserve and perhaps also have an accessible line of credit? What percent of costs were eliminated in the shutdown? Perhaps as much as 75% of costs eliminated for many businesses? If true, they need enough cash to cover 25% of their costs for two months. Don't businesses have enough liquidity after an 11 year bull market economy to cover that?

 

The two biggest costs for many small business are occupancy and payroll. Even if you are working remotely, businesses still have to pay rent or a mortgage if they don’t own the building. And even if you aren’t using the building, there are still costs to keeping the building that aren’t going away. Payroll is easier to manage, because you can reduce pay or reduce staff, but obviously that has a big effect on the economy as a whole.

^ @Bluegrasscard

 

Most of those costs you list above are gone too. Don't small businesses keep a cash reserve and perhaps also have an accessible line of credit? What percent of costs were eliminated in the shutdown? Perhaps as much as 75% of costs eliminated for many businesses? If true, they need enough cash to cover 25% of their costs for two months. Don't businesses have enough liquidity after an 11 year bull market economy to cover that?

 

Ideally, revenue and cost could align on a short term (and long term basis). Hence, JIT parts/raw material delivery and other optimization techniques. But in really a lot of costs are fixed. Rent is fixed, utilities are still being consumed, etc. But also, to get good pricing on goods - and services (market I am in) you need committed contracts. So you sign up for full year or multi-year contracts to get those this JIT parts or to get your fully outsourced IT services. And those come due each month. And though they may have some flexibility for some variances, they will usually have at least a floor of monthly charges.

 

Usually the most flexible cost element is, unfortunately, labor (people). Hence why layoffs are such a common short term 'fix'. But with layoff comes severance (if a company is doing the right thing - even if not legally required) and other "off-boarding" costs. But also, elminating a person does not eliminate all the cost associated with that person - office space or work area is still a cost. The company owned computer (and IT services that go with it), the software license, etc. So not all that is saved immediately.

 

Companies by practice should not have an extremely large cash reserve unless they are planning on using it for acquisition or capital purchases. They should have cash to address any foreseen variances. But I just can not see a stoppage of two plus months being something that would be anticipated in most cases.

 

Increase in bankruptcies will be the tale of tape since that is what usually happens in a lack of cash situation.

The two biggest costs for many small business are occupancy and payroll. Even if you are working remotely, businesses still have to pay rent or a mortgage if they don’t own the building. And even if you aren’t using the building, there are still costs to keeping the building that aren’t going away. Payroll is easier to manage, because you can reduce pay or reduce staff, but obviously that has a big effect on the economy as a whole.

 

What is the financial plan for a business? Don't they have a liquidity plan? For individuals I have always heard keep 3-6 months of expenses available in cash for emergencies. Don't businesses have a similar plan?

What is the financial plan for a business? Don't they have a liquidity plan? For individuals I have always heard keep 3-6 months of expenses available in cash for emergencies. Don't businesses have a similar plan?

 

Most business do not keep large cash reserves that aren’t earmarked for something—-seasonal ramp up, expansion, seasonal downturn etc. while I would say most do have a plan to account for possible bad times, I don’t think any one plans for absolute disaster or a near complete shutdown or nearly zero revenue for any extended period of time.

Most business do not keep large cash reserves that aren’t earmarked for something—-seasonal ramp up, expansion, seasonal downturn etc. while I would say most do have a plan to account for possible bad times, I don’t think any one plans for absolute disaster or a near complete shutdown or nearly zero revenue for any extended period of time.

 

I am talking about 2-3 months. A liquidity plan that would cover reduced expenses for 2-3 months.

Question about 401K. I have a 401K at my current job, but I will be changing jobs in 2 weeks. I have lost about 8K since Jan 1st on my account. Any advice on if I should continue paying into it and leave it where is or at the new job transfer it over or go with a bank into a savings account?

Question about 401K. I have a 401K at my current job, but I will be changing jobs in 2 weeks. I have lost about 8K since Jan 1st on my account. Any advice on if I should continue paying into it and leave it where is or at the new job transfer it over or go with a bank into a savings account?

 

If you have 5 years or more till retirement, stay in the market. Don't put it into cash at this point. You also could roll into an IRA and pick your own investments.

I am talking about 2-3 months. A liquidity plan that would cover reduced expenses for 2-3 months.

 

How long do you think it would take a small business to save enough money to survive getting close to zero revenue for three months?

How long do you think it would take a small business to save enough money to survive getting close to zero revenue for three months?

 

My guess is most small businesses are like me: a few bad months and that's all she wrote.

My guess is most small businesses are like me: a few bad months and that's all she wrote.

 

If they were in a position to have that kind of reserve more than likely most would develop beyond being a "small business."

If you have 5 years or more till retirement, stay in the market. Don't put it into cash at this point. You also could roll into an IRA and pick your own investments.

 

Agreed.

The two biggest costs for many small business are occupancy and payroll. Even if you are working remotely, businesses still have to pay rent or a mortgage if they don’t own the building. And even if you aren’t using the building, there are still costs to keeping the building that aren’t going away. Payroll is easier to manage, because you can reduce pay or reduce staff, but obviously that has a big effect on the economy as a whole.

 

Smart commercial landlords will work with their tenants during the forced shutdown period to share the burden. When the shutdown is over, the landlord will have a ready-made tenant to lease the premises--so long as the tenant-business is able to re-open.

Ehhhhh, I have no sympathy for businesses that go under. They should have prepared properly for these occasions. At some point personal responsibility has to come into the equation. They don’t have rainy day funds or emergency money stashed away for moments like this?

 

 

Shame.....

I don't think people have a grasp of the number of Americans that live paycheck to paycheck. And we are not talking just those on the lower income scale. Many middle to higher income earners live paycheck to paycheck. Businesses are the same way. Additionally, most businesses are not employing 25+ people. Most businesses are much smaller than that, independent, and been in existence less than three years. Most models don't show business profits to the level of building up multiple-months reserves in this time frame.

If you are business owner, now is the time for your records to be in tact! Log any and all hours for you or your employees for time spent dealing with COVID-19. From meeting time, cleaning your desk, OT hours, procurement, emails, etc. Much of this could be eligible for reimbursement.