What's going on with these business' going bust because the economy contracts abit

J

junii

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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?
 
Re: What's going on with these business' going bust because the economy contracts abi

From what I've read, it seems if the economy has more 'fallen off a cliff' than merely 'contracted a bit'. People from all sectors are now losing jobs, not just building and retail.

Anyway, many businesses really rely on access to credit. This has been largely removed. Some businesses do not have an underlying businesses model that lends itself to cash reserves.
 
Re: What's going on with these business' going bust because the economy contracts abi

While you may read it as "contracting a few percent", a few percent is huge.
Economies typically need growth levels of at least .75% to maintain "current employment", i.e. that's more or less 0 employment growth, but 0 employment loss also.

So, even 0% growth means significant jobs losses.

Negative growth of "a few percent" means lots of job losses indeed.

junii said:
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?
Click to expand...
 
Re: What's going on with these business' going bust because the economy contracts abi

I work in a property related area and I would pinpoint the summer of 2006 as when things started to turn so even though we have officially only been in a recession for a few months it is not as if the poorly performing economy is a recent thing. Some businesses can only ride out the storm for so long.
 
Re: What's going on with these business' going bust because the economy contracts abi

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
 
Re: What's going on with these business' going bust because the economy contracts abi

limerickboy1 said:
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
Click to expand...

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.
 
Re: What's going on with these business' going bust because the economy contracts abi

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.
 
Re: What's going on with these business' going bust because the economy contracts abi

theresa1 said:
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.
Click to expand...

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!
 
Re: What's going on with these business' going bust because the economy contracts abi

LennyBriscoe said:
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!
Click to expand...

A store best known for infantile shouty radio ads and high prices is not doing well? Color me surprised.

I mean, just look at their **** website:

http://www.harveynorman.ie/computers.htm

Click on "Computers" and you get... a picture of a woman using computers. That's great, Harvey.

Click on "Catalogue" and you get tiny JPG images of an actual scanned catalogue. You can download each page seperately if you want as a PDF. No text search. A page designed by a company who consider their customers to be morons impressed by colourful pictures. Good riddance.
 
Re: What's going on with these business' going bust because the economy contracts abi

Sunny said:
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.
Click to expand...

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?
 
Re: What's going on with these business' going bust because the economy contracts abi

Harvey Norman is leaving?
Super, every cloud..

Go Harvey Norman Go, please go..quickly.
 
Re: What's going on with these business' going bust because the economy contracts abi

junii said:
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?
Click to expand...

What a ridiculous post. Why don't you try running a business before posting something as stupid as that. Not every small business man has a range rover, boat, massive house after the Celtic tiger. He runs a small printing firm that turns over enough profit to give himself and two employees an average living. The majority of businesses in this Country rely on bank credit to help manage their cash flow. It doesn't mean they are borrowing to pay their employees and suppliers.
 
Re: What's going on with these business' going bust because the economy contracts abi

Having recently had a large extension / renovation job done, I've been dealing with a contractor and several sobcontractors. One (excellent) tradesman is down over €30 k in 6 months, on two separate large jobs he's completed where the main contractor's gone into liquidation before he's been paid. Another had cut his rates substantially just to keep in work, but is now working massive hours to compensate. Other suppliers are having real difficulty in getting payments in, which has a major effect on cash flow. One person I've dealt with has told me he's had credit facilities massively cut back by the bank - and I wouldn't be surprised to find others just on our one project are in the same boat.

All of them are good, reputable, established tradesmen or companies, and are under threat from the economic contraction. And that in turn means all of them have less to spend.

Admittedly, that's directly in construction which is most exposed - but all of that filters through to their suppliers and to all of the service, legal and retail companies which depend on them for a substantial proportion of their income.

It's really bad out there, with no immediate likelihood of improvement.

And with the benefit of hindsight, I reckon DeeFox is spot on in timing (and that's what my solicitor was telling me in late summer 2006 too, after auction sales fell off completely round May, though I was sceptical on the scale of it at the time).
 
Re: What's going on with these business' going bust because the economy contracts abi

junii said:
I'm sure there's financial structures you could use to run your business without credit unless you were trying to expand.
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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.

Even businesses which are fundamentally profitable can be really hard hit (easily fatally hit) by a few bad debts from bigger customers; couple that with a withdrawal of credit meaning you can't trade through and recover by ploughing later profits back into the business, and a small business can go under painfully quickly.

Larger businesses are hit in exactly the same way, they just aren't quite as immediately vulnerable and are more likely to have reserves to smooth through a short down-turn. But contraction in some sectors, especially construction related, has been happening for well over a year - reserves for those businesses which had them are badly depleted just as credit is getting harder and harder to access.

I can see a lot of the small businesses going under in the coming months, and a lot of movement into the black economy just to get cash coming in.
 
Re: What's going on with these business' going bust because the economy contracts abi

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.
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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.

I'm sure there's financial structures you could use to run your business without credit unless you were trying to expand.
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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.
 
Re: What's going on with these business' going bust because the economy contracts abi

leghorn said:
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.
Click to expand...

I know you can't predict the future so you plan for worst case scenarios!

leghorn said:
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.
Click to expand...

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.

If you had reserves. ie. pump a large amount of your profits into a fund I don't see why credit is so damn important for suppliers or anything unless there are other benefits to doing it this way like some sort of legal protections should something go pear shaped with the supplier. Though as per DreamerB I can understand how a large debtor could cause damage. Do you not get some of your money back somehow or anything?

While I understand that you say some business' are reliant on these facilites DreamerB I think it leaves a business completely exposed. There must be away to avoid all this?

Am I just completely Naive?
 
Re: What's going on with these business' going bust because the economy contracts abi

I know you can't predict the future so you plan for worst case scenarios!
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We always do, and we're not often wrong! :D
(Or there's an even worse scenario we didn't think of)

Where do you stop though? - should you plan for what happens if all your customers disappear, or a sudden loss of credit? Business owners have to accept there will always be risk, no matter how much planning is involved. Setting up and running a business is always risky, every company from Microsoft to Sally's Diner has risks. It's not possible to plan for all of them or businesses would never go bust.

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.
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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.

It really is about cash flow.
 
Re: What's going on with these business' going bust because the economy contracts abi

"While I understand that you say some business' are reliant on these facilites DreamerB I think it leaves a business completely exposed. There must be away to avoid all this?

Am I just completely Naive?"

Errrr, perhaps just a little?

I think DreamerB has explained it very well. At a certain stage it can become no longer possible or financially viable to run a business. You are doing work for which you are not being paid, or perhaps more likely you are not even doing any work, so you can pay your overheads for a certain period of time but after that it becomes clear that unless you are willing to self finance your outgoings from savings, if you have them ( with little or no chance of recoupment) that letting staff and premises go ,and, ultimately, closing down or contracting completely becomes the only option.

Someone made a comment on a different thread which I found interesting. In my view, it is only people in the public sector who are guaranteed their salaries every month who are willing to spend on unnecessary shopping/expenditure. Everyone I know who is self employed are really feeling the pinch and pulling back on all unnecessary spending.

Oh well. Home for bread and water, now so.

mf
 
Re: What's going on with these business' going bust because the economy contracts abi

I had cause to be in the Liffey Valley Shopping Centre on a weekend two weeks ago; It was jammed; I had cause to be in a shopping centre in Galway the weekend just gone: also jammed. So some people are still happily spending money and are willing to go and wedge themselves into these places at the weekend (I had to-ordinarily I would rather poke a spoon repeatedly into my eye)

That said, huge sectors of the economy have indeed shrunk dramatically and some have just completely stopped. It is going to get scary.......
 
Re: What's going on with these business' going bust because the economy contracts abi

LennyBriscoe said:
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!
Click to expand...

The link doesnt seem to work for me.
 
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