Friday, January 28, 2011

Big Businesses Causing More Problems For The Economy.

Like water flows, a business' cash must also flow steady & strong
 The New York Times article "Big-Business Deadbeats" highlights one of the biggest problems with the economy that, as far as I am concerned, is not reported about enough.
The article discusses how Cisco Systems announced..."effective March 31, 2010, Cisco announced to its small business suppliers that as a rule Cisco would wait sixty days after receipt of an invoice — or net 60, in business jargon — before cutting a check. The reason Cisco gave for this new policy was not that it was hard up: the company has nearly $39 billion of cash on its balance sheet, and in the third quarter of 2010 alone it spent $2.7 billion to repurchase its own shares. Rather, the corporation explained that it had been “benchmarking against our technology peers” and found a precedent for “new payment terms.” In other words: Everyone is doing it, so we are too."
As a small business owner myself, the issue of payment terms and how it efffects our cash flow cannot be emphasized enough.  In the consulting business the time it takes to get paid is the hardest part of being in business.  You perform a service and then have to wait 45 to 60 to 120 days to be paid for that service.  During that period of time you had to pay your employees, if you got good terms you may have had to pay your suppliers and the overhead (phones, office space, etc.) is owed every month on the dot.  How do you pay for all of these things without payment from the client?  Which brings me to the second biggest problem with the economy - the lack of small business loans to handle this cash flow crunch.  The big banks got a bail-out but they were not forced to maintain the credit lines to the small business owners that were running their business on these credit lines.  Many of these credit lines were closed and shut down forcing businesses to use non-traditional sources as their credit lines (credit cards with high interest rates, etc.).  I am not an economist, but in running my business if I don't have the flexibility to smoothen out the cash flow problems I face, then I can not hire someone even if I need to hire someone.  If the government wants small businesses to start hiring again, then they need to address the lack of small business loans that are available for small businesses.  They need to force banks to reduce the standards they are setting to get a loan.  In addition, the government wherever possible should reduce the time period it takes to pay their suppliers, consultants, providers, etc.  Reducing this time period would increase the cash flow to small businesses helping these businesses better handle the current economy and possibly allow them to start hiring.
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