Move Your Money From Big Banks To Community Banks

[Todd H]

In Reply to Parent Post by Marc

When a business depends upon credit, it has a major business model flaw with a high probability of failure.

You know, we could say the same thing about the Government as well right?

In my case the credit I speak of is not cash flow to pay ordinary bills for my OH. What I speak of is material cost for jobs. Not having access to credit limits the size of the jobs when materials are involved.

There is no way to predict the size of the jobs that may come available thus access to credit is a good tool in this case because it is typically only a 30 to 60 day cycle.

I bid, get awarded, purchase materials, perform work, bill client. At this point I have to wait 30 days to be paid and in some cases longer.... So I have to typically carry all the expenses about 45 to 60 days.


I dare say, most companies have an operating line of credit for these types of deals or they simply issue a PO which is a promise to pay later which is in effect a type of credit.

[True Position]

In Reply to Parent Post by Marc

When a business depends upon credit, it has a major business model flaw with a high probability of failure.

Pretty much every auto supplier runs on this model though. It is one reason GM modified their terms from Net60 to Net30 during the supplier meltdown. Lots of suppliers are gone or are going under. The base will likely consolidate under a smaller number of large suppliers.

[Marc]

In Reply to Parent Post by Todd H

You know, we could say the same thing about the Government as well right?

Yes. And that is the way it *should* be. I'd take tax and spend over borrow and spend any day.

[Todd H]

In Reply to Parent Post by Marc

Yes. And that is the way it *should* be. I'd take tax and spend over borrow and spend any day.

We agree then. Some say that a small amount of deficit spending is needed to expand the monetary base but banks can also provide that function as well.

Now the question is how much taxes should the Government take out of the economy for it's programs? 0 to 100% is the option. I think 25% for federal is good and 10% for local is good. That is over 1/3 of the economy. Some think the Government should be limited to 20% of the economy.

[Marc]

In Reply to Parent Post by True Position

Pretty much every auto supplier runs on this model though. <snip>

And? It's the same thing no matter what the business. If it relies on credit it has a fatal flaw.

Maybe that's why I liked consulting. Few big upfront investments. I sell (sold) my knowledge through my consulting and and training services which I don't have to pay for every time I used them. There were some investments such as flying to Tim Buk Tu to quote a big consulting job (not to mention the quoting process), but I made sure I had the cash to loose in case I didn't get the job. That has been my business model for over 20 years. But even it was eclipsed my big companies for all intents and purposes by 2000 to 2002. Like auditing - These days auditors are a dime a dozen for ISO 9001 (not so true for auditors in specialties like medical devices and aerospace which depend heavily upon experience in the industry). And there are more consultants around than there are fleas on a dog.

Not to mention, I'm a biologist, not a business person. I ended up in business because it's relatively easy stuff.

I don't know what 'the answer' is, but I know credit isn't everything people make it out to be. Not to mention, loans are an added expense. If you talk in 'Lean' terms, there's fat to be cut.

On a personal level, my epiphany came back around 1990. I started using accounting software on my Mac about a year or so earlier so I had some data built up. I saw over US$4K in credit card interest alone. I paid them off and have never since had a balance on a credit card. I paid my house off in just under 7 years. When I had extra money I threw it at the mortgage. The last car loan I had was 2 years ago (I was short on liquid cash and a friend whose business was going down the drain had to sell it fast) and I paid the loan off in 2 months. I *depend* on Quicken.

Credit may not be evil, but it's a significant non-value added expense.

[Todd H]

In Reply to Parent Post by Marc

And? It's the same thing no matter what the business. If it relies on credit it has a fatal flaw.

Maybe that's why I liked consulting. Few big upfront investments. I sell (sold) my knowledge through my consulting and and training services which I don't have to pay for every time I used them. There were some investments such as flying to Tim Buk Tu to quote a big consulting job (not to mention the quoting process), but I made sure I had the cash to loose in case I didn't get the job. That has been my business model for over 20 years. But even it was eclipsed my big companies for all intents and purposes by 2000 to 2002. Like auditing - These days auditors are a dime a dozen for ISO 9001 (not so true for auditors in specialties like medical devices and aerospace which depend heavily upon experience in the industry). And there are more consultants around than there are fleas on a dog.

Not to mention, I'm a biologist, not a business person. I ended up in business because it's relatively easy stuff.

I don't know what 'the answer' is, but I know credit isn't everything people make it out to be. Not to mention, loans are an added expense. If you talk in 'Lean' terms, there's fat to be cut.

On a personal level, my epiphany came back around 1990. I started using accounting software on my Mac about a year or so earlier so I had some data built up. I saw over US$4K in credit card interest alone. I paid them off and have never since had a balance on a credit card. I paid my house off in just under 7 years. When I had extra money I threw it at the mortgage. The last car loan I had was 2 years ago (I was short on liquid cash and a friend whose business was going down the drain had to sell it fast) and I paid the loan off in 2 months. To this day I *depend* on Quicken.

Nope - Credit may not be evil, but it's a significant non-value added expense.

I will agree that as a general rule, businesses should not be built on credit.
Part of the problems we have today is too much leverage and too little reserves.

Not every business model can be built on Consulting. Not every person is cut out to run any type of business and in fact without people simply selling labor there would not be many of the businesses in place today.

In my case, can not afford to spend 100% of my cash on materials then wait 45 to 60 days to get paid to start another contract. That would limit me to a maximum of 4 to 6 jobs per year. It makes more sense to pay the overhead expenses out of my cash flow and borrow on an as needed basis for jobs requiring materials.

using a similar thought process you used, I decided a majority of my business should be services rather than project creation requiring large sums of inputs. However, the service model does have lower net profits than do jobs that produce durable goods. Because of the lack of credit, I am primarily looking at the service end right now.

Secondly, besides owning and running this company, not related to Auditing, I am also teach various classes. That effectively makes me a consultant as well and the reason I came to this site.

While I have taken some EMS Auditor classes and hope to soon be a provisional auditor, my main goal is just to become a better instructor.

Having said that, I can show some mathematical equations where some companies are better off borrowing on some items. Sometimes, it has to do with ROI and sometimes it is for tax benefits, often both.