…Stupid:
He…proceeded to relay a conversation he had with a local chemical company regarding their 2010 capital expenditure budget. When asked what the company intended to invest in 2010, the response was ‘nothing,’ not due to a paucity of good opportunities, but because it was impossible for the company to calculate a rate of return given all the uncertainty over cost of labor, energy prices, regulatory mandates and the like.
These people are completely clueless about how an economy works.
It’s worse than that: they think they do know.
And I guarantee you that the money these companies would otherwise be investing with is instead being used to hire consultants to come in and find ways of further reducing their tax payments.
The line last week about “Needing a loan to make payroll” is the only information you need to judge their business competence.
The line last week about “Needing a loan to make payroll” is the only information you need to judge their business competence.
Not necessarily. A lot of businesses get into cash flow crunches especially in tough times. When you have to pay your expenses and payroll but your customers are slow at paying you, some form of line of credit can help you stay in business. This cuts across many small businesses from the local doctor’s office on.
The bright side is that Scott Brown’s election will persuade
a lot of frightened businessmen that Obama will not be able
to get his agenda passed any more. Look for a roaring comeback as the Dems become more and more discombobulated.
Lots of companies do Accounts receivable financing…
They built it, and sold it and their customer pays 30, 60, or even 120 days later.
This can also happen on large projects that take years where the significant payments are at completion. So needing a loan to make payroll is not necessarily signs of a bad co.
I used to work with a guy who was an ex-accountant, he’d been in franchise businesses doing that for decades. He used to get his bosses short term lines of credit based on equipment and business property at 4 or 6 percent. Then they’d buy into some kind of short term stocks, bonds etc, making around 8 to 10 percent.
They’d buy into the stocks, bonds etc, then borrow for payroll, food purchases, etc. Then they’d pocket several thousand dollars extra per month when they “cashed out” at the end of each quarter. He said on several occasions it was the difference in keeping the doors open, or not. But most of the time, it was “extra” income for the franchisees.
He only quit doing it when tax laws were tightened up. Admittedly, of course, it’s an unusual situation when tax laws change and cause problems for business owners.
“Look for a roaring comeback as the Dems become more and more discombobulated.”
Then there is also the uncertainty of the Bush tax cuts begin left to expire on their own. It’d almost be better if he’d just come along and rip the thing out right now like a band aid and just get it over with. By letting the tax cuts phase out slowly it is causing some businesses to over spend this year while they still have the lower taxes and then plan cut backs for next year. In essence this whole approach is causing businesses in 2010 to steal GDP from 2011.
So, no it is likely that things could get a lot worse next year and likely continue that way till 2014.