How do you go out of buisness when your not paying your employees, not buying additional inventory and tax collection has been suspended?... Im not understanding how these businesses go bankrupt under a shutdown. I hear every day "small biz can only last a week", I dont get it.
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Yep. Also, many companies may be owing on net 30, 60 or 90 terms and those terms are still likely going to come due.
Lets not forget house rentals... small business needs to pay home stuff
Businesses really on cash flow. They have loans they're servicing, accounts payable, leases, utilities...
How do people go bankrupt when they don't have an income but have plenty of food in the house? Is food your only bill?
That makes sense, sorry for the dumb question. Hopefully there is something in this relief package to mitigate their losses.
It wasn't a dumb question.
Even if all that were true, when it isn't in a lot of circumstances, you have leases and loans and debts that will keep accruing. A business has fixed costs that will exist no matter what.
There are expenses that accrue constantly and forever. Like rent. The rent isn’t going to be forgiven. So businesses will be on the hook for it all even for when they weren’t making any money.
The biggest issues are tiny profit margins, high rents and taxation.
Small businesses have a lack of purchase power which means they pay higher amounts for all the products they sell and use to run their shops. An item on the shelf that costs 10 bucks used to cost the seller around 5. That margin has been reduced so far that the $10 item costs the seller 8. This minimal profit leaves no savings as it’s only enough to cover overhead costs like salary, rent and bills.
The overhead factors are continually battling one another for a piece of the 20% profit an item makes. The ‘hungriest’ of which is rental costs for a store front. The rent is “too damn high”. Then come the employees. They think they’re worth $15 an hour even though the business only produces enough to pay 10 or 12. After paying the employees and half of their SS and Medicare liability, the tax man sticks his hand out. They want estimated payments made in 3 month intervals on every penny you earn as an owner. If there’s any money left/ profit , they hit you again with taxation on that amount.
At the end of the day, there’s no extra money to create a business savings that has any heft. The instant customers aren’t writing checks and swiping cards, they are totally fucked. The rent will still be due, the business loans still have to be paid and the business model crumbles instantly before their eyes.