Hi,
Just regarding the closing down of woolworths and other companies which I would imagine will shut down in the future given the economic climate.
Is it not bad management that these companies are going under? Should these companies not have planned for the bad times and have had more liquidity or cash reserves?
It seems absolutely ridiculous to me that these companies do not have a large cash reserves. Did they not think there would be bad times? Aer Lingus has cash reserves! Ryanair do aswell and will probably buy planes now while there cheap.
I just can't understand why every business does not have a plan for downturns and recessions. They should be well prepared for such things since they come and go in a seemingly natural cycle.
Just watching the news here now and apparently "Harvey Normans" are saying that they regret moving to Ireland! Have they never anticipated that things can get bad - are they stupid or do they not know anything about economies?
Have they never heard of the 1929 depression and do they not have advisers and consultants which have enough experience to tell that mortgages could not keep going the way they were going in the states?
people dont reliase that these companies use the commercial paper market to run basic things like payroll (yes from week to week compaines might not have enough cash to run things like payroll) so they used to borrow short term and pay back week after etc. now the banks are not providing this type of funding any more so any company that does business like this is in real trouble
Maybe it's now our patriotic duty not to shop in Harvey Normans after what was said? I reckon Harvey Normans will close shop soon.
And for those who missed what the Harvey Norman chief said check this article out: [broken link removed]
I ill let people judge for themselves!
Very few Irish companies use the commercial paper market so am not sure why you are dragging that into it. You are right though that the problem facing companies is cash flow. People are taking longer and longer to pay bills while at the same time banks are cutting of credit in the form of overdrafts and loans. A friend of mine was waiting 6 months for a large sum to get paid by one the Country's biggest local authorities for work done. In that time he had to pay wages and suppliers etc and so he had to rely on bank credit. They now want him to do more work but is reluctant to do it under the same terms as before bacause in the current environment he can't afford the risk that his cash flow will disrupted because he isn't sure the bank will extend the credit this time.
Well assuming that friend of yours has been in business for a few years and has reaped the benefits of the tiger economy what has he spent all his money on that he needs to borrow to pay his men and suppliers? Range rovers? A boat? A massive house?
Well, if you start out with vast capital to include substantial cash reserves which can include your entire wage and overhead bills for a year or three, perhaps. And even then, only perhaps. But credit is absolutely essential for most businesses - bank loans, credit from suppliers, overdraft facilities to smooth out cash-flow. This includes businesses which are conservatively run, efficient and profitable.I'm sure there's financial structures you could use to run your business without credit unless you were trying to expand.
How could you cater for every possible scenario? Businesses are reliant on markets. We don't know what position we will be in three months from now.A business should have a plan for every possible scenario so they can gauge risk. I imagine companies were so focused on increasing sales they forgot to think about such things.
Few businesses can operate with access to credit of some sort. For example, would you consider saving up for a house and buying it with cash, or getting a mortgage?I'm sure there's financial structures you could use to run your business without credit unless you were trying to expand.
How could you cater for every possible scenario? Businesses are reliant on markets. We don't know what position we will be in three months from now.
Few businesses can operate with access to credit of some sort. For example, would you consider saving up for a house and buying it with cash, or getting a mortgage?
Many businesses run hand to mouth and need cashflow. Credit facilitates this, while you're waiting 60 days to get paid.
We always do, and we're not often wrong!I know you can't predict the future so you plan for worst case scenarios!
Yes, if you had it! You can either save the money and buy in the future, or you can get a mortgage and buy it now. Businesses buy stuff on credit so they can get the use of the asset now, whether it's machinery or staff wages.I'd buy a house with cash if I had it.(assuming I couldn't beat the interest payments with another investment) ie. Make better use of your 300k or whatever.
And for those who missed what the Harvey Norman chief said check this article out: [broken link removed]
I ill let people judge for themselves!
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