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The realities are brutal indeed BUT we should all be using the right terminology here: This is all about cashflow. When you say: > So you use money from the
by nlh 4y ago
The realities are brutal indeed BUT we should all be using the right terminology here: This is all about cashflow. When you say:
> So you use money from the 60k in "profit" to buy inventory, leaving you no profit.
That is incorrect. The business still has made a $60k profit, but they have no CASH since they had to redeploy that cash toward additional inventory (which leads to additional profits).
> At that point you haven't made anything. It looks like you're making money, but you aren't.
Again, sorry: You have made $60k in profits, but you're short on cash. Your business is making money -- you now have the next batch of inventory paid for and you were able to afford that with the profits from the previous batch. Those are real assets, But your business is indeed short on cash -- this is where revolving credit lines and similar financings come into play (which carry a cost and complexity of their own).
It's definitely a challenge!
- Waterluvian 4y agoI imagine there’s reasonably priced financial products like business lines of credit, especially if you’re demonstrating a revenue stream and your only issue is cash flow. Ie. You’re not borrowing money for big capex things like renovating a restaurant. Of course nothing is guaranteed. That second batch of coffee may not sell.
- ABCLAW 4y ago>I imagine there’s reasonably priced financial products like business lines of credit So much so that there's names for various ways of cutting up the receivables risk. For example: https://www.investopedia.com/terms/f/factor.asp https://www.investopedia.com/terms/f/factor.asp
- lazide 4y agoFor a long time, those have been nearly free and easy to get. The temptation then is to continue doing more and more marginal business models, because they work and the competition does the same. Those are getting harder to find and more expensive. Lack of those at the right time is what causes the liquidity traps the Fed is always talking about, when it happens at large scale. Little risk of that happening now it seems, and a lot more ‘reaping’ of marginal business is likely before the Fed changes direction.
- lazide 4y agoNotably, with cost of money rising, I’d expect a non trivial percentage of existing business models and businesses to no longer be viable because of this.