Comments on: When cash is tight – slow its flight! https://berkonomics.com/?p=700&utm_source=rss&utm_medium=rss&utm_campaign=when-cash-is-tight-slow-its-flight Dave Berkus' business insights Sat, 19 Feb 2011 02:54:18 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Michael O'Daniel https://berkonomics.com/?p=700&cpage=1#comment-1564 Sat, 19 Feb 2011 02:54:18 +0000 https://berkonomics.com/?p=700#comment-1564 To all the solid advice Dave has laid out here, I would add one more: DO NOT factor your receivables! (I don’t know if this practice is still in effect, or if it applies to the software business, but it was very prevalent a few years back.) The private banks that factor your receivables charge 22-30% interest and only pay you on 80% of your receivables instead of 100%. And the deeper in hock you get to them, the more they start running your business. I was with a company in the graphic arts business that was cash-profitable (at least on paper) during a very challenging time when that industry was going through a tremendous upheaval due to desktop publishing. We had adjusted our business model and were starting to turn the corner when the factoring bankers pulled the plug on us. They dictated a certain move to our CEO and he chose not to make it (what they had dictated was actually a sound move business-wise, but personal relationships and loyalties took precedence).

Yeah, and we were always in hock to the IRS and the State Board of Equalization as well… contrary to Mr Thordarson’s experience, my recollection is that both of them caught up with us in 3-6 months time rather than a year (maybe we were on their “watch list”).

The best advice I can give anyone in financial straits, and this is a positive takeway from working with the above-mentioned CEO, is that you MUST communicate with everyone involved — vendors and employees. Your creditors will be much more forgiving if you keep in constant communication, honor your promised pay date (even if beyond the usual 90-120 days), and if you find you can’t meet your previously agreed-upon schedule, call and negotiate for a new dates. As to employees, if they understand that there is a choice between paying certain vendors and/or paying withholding taxes in order to keep the company afloat, or otherwise going out of business, they may sometimes agree to work with you. Yes, you do have to pay your employees first, ahead of everyone else, but they have been known to make exceptions if they believe strongly enough in the future of the company AND they trust that they are getting a fair deal from the leaders of the company — particularly if the leaders are also foregoing or delaying their own paychecks. (As is often the case with startups.)

]]> By: Oli Thordarson https://berkonomics.com/?p=700&cpage=1#comment-1533 Tue, 15 Feb 2011 22:25:57 +0000 https://berkonomics.com/?p=700#comment-1533 We got burned some time back by a payroll firm that did the same thing and absconded with cash meant to pay payroll taxes. Fortunately we sensed things were not right and switched after one quarter like you did. We only lost about $200k. That is a lot of money, but it could have been worse as most victims lost a whole year of taxe payments. It takes the IRS that long to figure out no payments or forms have been received. The total take by the principal of this firm was about $18m and most of it was spent on gambling, escorts and cars.

The IRS and Sacramento are unforgiving and short on patience. Insurance will most likely not pay for this loss as you “wrote the checks” to the thief yourself so to speak.

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