Credit and business owners...

[lowyder993s]

I keep hearing talk of businesses that use credit to fund payroll
...show of hands, how many use credit to finance their payroll? # of employees?
I can't imagine being that cash strapped. Seems you'd be 1 hiccup away from shutting the doors. What kind of confidence would that instill in employees?
Maybe things are different in other parts of the country...I know it is for Len
I have weekly payroll for 75 guys...I'd hate to think of having a running tab of 4%-6% running interest.

[lendaddy]

I've never used it to fund payroll per se, but if I didn't have it for materials I would come up short for certain.

And yes we are one hiccup from shutting our doors.

Employees don't know(the details anyway, they are well aware that we are struggling and I have a fantastic crew) or care about that side of the business.

I got in on this at the beginning of the crunch on suppliers (auto). It wasn't always this way. I went over our books from the years I was on the floor and back then they actually let their suppliers turn a profit(the 80's). These days it is not the case.

We should have walked away over a decade ago, but when it's all you know....


So yes, tons and tons of companies rely on LOC's. Right or wrong, wise or foolish.

[carambola]

well gee, that could be a real dilemma

[lowyder993s]

I've used (and stayed in my) LOC for purchases, but never payroll. My assumption being, if you're using it to fund payroll you'd CERTAINLY be using it for material purchases first. I'm outta mine and sitting on my wallet. No expenditure unless absolutely necessary.

[lendaddy]

Originally Posted by lowyder993s

I've used (and stayed in my) LOC for purchases, but never payroll. My assumption being, if you're using it to fund payroll you'd CERTAINLY be using it for material purchases first. I'm outta mine and sitting on my wallet. No expenditure unless absolutely necessary.

If conditions in your industry suddenly changed and you found yourself losing money, would you instantly shut it down or ride your LOC while trying to right the ship? Say it's a company that made you a profit/living for the previous 20 years.

[carambola]

you're gonna start cutting the payroll so you don't have to dip,

if you're already dipping, you're a goner

[lendaddy]

I also suppose the argument could be easily made that if you use your LOC and you have a payroll then you're using it to fund your payroll. The actual allocation of the funds you're borrowing is irrelevant unless you have unique terms with the customer in question(assuming you tap the LOC for a specific project/customer).

Take away the LOC and you can't service that customer any more or you can short your payroll.

[lowyder993s]

Originally Posted by lendaddy

If conditions in your industry suddenly changed and you found yourself losing money, would you instantly shut it down or ride your LOC while trying to right the ship? Say it's a company that made you a profit/living for the previous 20 years.

That is EXACTLY what happened...I rode the LOC AND cut payroll. We are lean mfg. We have about 16 inventory turns a year...roughly every three weeks. So I'm buying just in time, spitting it out the door, giving the customer 30 days to pay (which often drags to 60 plus for medium level customers, my largest are w/in terms) and having to pay my payroll in 7 days and purchases in 30. For many years we had a war chest and it was easy to weather the cash flow. But a down year made it tough to climb out. It took another 7 REALLY good months to chip away and get out of the LOC. Now staring down the barrel of this economy, I have to try and refill that war chest before the economy tanks in Cali.

[Rick Lee]

I've been wondering a lot about this at my own employer. Obviousl, the rank and file employees aren't gonna get a straight story from the CFO if there's trouble brewing. Wish I knew how to really check it out.

[Dixie]

You know, a lot of companies out-source their payroll. And I bet the companies they out-source to invest the money in over-night accounts. And as an extension, use credit to make payroll at time's.

[carambola]

the rank and file know it's tough


they know it's happening



your destiny is yours to shape

[lendaddy]

Originally Posted by Rick Lee

I've been wondering a lot about this at my own employer. Obviousl, the rank and file employees aren't gonna get a straight story from the CFO if there's trouble brewing. Wish I knew how to really check it out.

Without snooping the accounts there is only one way to really know. Bring it up with your boss in a "I'm sure we're hurting too, right?" kind of way. People in pain like to vent (how do I know this?) and if you ask in a "I understand" kind of way they may let you in on it.

[VaSteve]

Originally Posted by Rick Lee

I've been wondering a lot about this at my own employer. Obviousl, the rank and file employees aren't gonna get a straight story from the CFO if there's trouble brewing. Wish I knew how to really check it out.

Each business is different. The OP's business looks like some kind of manufacturing or retail. Your business is a service business, I suspect that You the employee are more vital to the organization in that you are trained up on the product, have customer relations, etc. It might be more worth it to them to float you for a little while while waiting on that big deal. Remember what happened at your last firm? People at HQ started disappearing? Phone calls weren't returned? If they ever ask you and your peers to make a list of what you do...you're screwed.

[Rick Lee]

Originally Posted by VaSteve

If they ever ask you and your peers to make a list of what you do...you're screwed.

Ha ha! Nothing like asking you to press hard and make three copies on your own walking papers. Where I work now is belongs to United Business Media, a UK conglomerate with a lot of businesses. I think we're pretty profitable, if they're not lying to us about where we are in the food chain and our percentage of annual revenue targets. But hey, in this kind of economic crisis a lot of stuff goes out the window.

We got a 1000 word emailed essay today from one of the real big shots in the company, you know, the kind you never ever see in person. It was all about how we need to control costs and cut where we can. Then he announces how the whole senior mgt. just had a huge conf. in Hong Kong, you know, to prove our commitment to our Asian businesses. Next one is in Cleveland. Then they fly all the sales people cross-country a few times a year for more Kool-Aid and training. Really kinda makes it hard to believe they're ever serious about cutting costs. Webinars are a large part of our business and we have to fly cross-country for internal meetings. WTF?

[RANDY P]

it screws over the seasonal businesses - unless you have huge cash (with diminished margins is really tough thanks to previous economy) there's no way to cover normal costs-

most small business owners rely on the lines to cover operating expenses until biz picks up again.

[campbellcj]

I have done it a couple of times, years ago. Cash was tight but large receivables were due in a month or so. No biggie really - just draw down from the line then pay it right back later.

Thank goodness in the last few years we have been flush with cash and carry zero debt. Don't even use plastic except for travel. I sleep a lot better now.

[Hugh R]

When I was a consultant on my own I didn't do it. Some months I'd cash $40K in check from client and some months I'd have $500 in A/R. Sole practice, so only me on the payroll. I kept lots of cash in reserve because I never knew where the next check was coming from. I'm glad I didn't have employees.

[BGCarrera32]

I work for a large company that has a lot of R&D in the US, and exports a lot overseas or sells and manufactures the same goods there. So the profit center is offshore, and it takes time to get the money back to the states- that's where credit and a solid credit rating come in, it has to do with timing. Don't be too quick to assume that because credit funds payroll the company is in trouble or knows not what it is doing...

[widgeon13]

I suppose a seasonal business like a ski area (prepping for the start of the season) might use credit to fund payroll at least until cash flow starts, but that's very risky.

[drew1]

Originally Posted by VaSteve

If they ever ask you and your peers to make a list of what you do...you're screwed.

Just happened to me.

I am a maintenance mechanic at a manufacturing plant for a corporation. I have been working in the machine shop for the past 8 years & our boss emailed me this week with a list of work orders. He needed to know the status of each one.

Later that afternoon he thanked me, saying he knew we were busy, but the plant engineer gave him that list & wanted to know.

Luckily, we are behind in our work. 10 years ago next month, I hired in at this plant. There was 8 people in the machine shop then & now just 3. With much of the equipment 50+ years old, we have plenty of things to make & repair.