3 ms·
Let's take a typical small business, and say it does $1 million a year in revenue. Cost of goods sold is $600,000 and fixed operating expenses are $350,000. Net
by dcolkitt 7y ago
Let's take a typical small business, and say it does $1 million a year in revenue. Cost of goods sold is $600,000 and fixed operating expenses are $350,000. Net margins are 5%, as is typical in small retail businesses. (These numbers are almost dollar for dollar from a local merchant-proprietor I know.)
Let's say the quarantine results in revenue falling by 70% over the next four months. Without a reduction in fixed costs, the business experiences a $76,000 operating loss. (About equal to 1.5 years of pre-tax profits.) Assume a 10-year amortized loan at 4%.
The cost of servicing the loan comes out to approximately $9500 a year. Which only reduces the ongoing annual cash flow by less than 20%.
- brayhite 7y agoYou’re assuming that four months have gone by and they didn’t have to sell assets to pay bills. Or relocate. Or lay off employees. Or employees quit because they couldn’t be paid with the loss of revenue. You’re modeling makes a lot of assumptions and discounts too many human-driven variables.
- dcolkitt 7y ago> You’re assuming that four months have gone by and they didn’t have to sell assets to pay bills. That's exactly why the government is giving them loans. To cover the fixed costs during a period of temporary disruption.
- cmurf 7y agoWhy should their landlord be entitled to 100% income? Only the peasants and serfs should take on this burden, go into debt, in order to prop up all the lords?