A couple of recent stories that make me wonder if people understand that while all Mom and Pop businesses are small businesses -- not all small businesses are Mom and Pop.
A Mom and Pop, almost by definition, provides an income for Mom and Pop, and perhaps a part-timer for breaks. That's the SCALE of the business. In theory, at least. I tend to think that just as there are fewer single income middle class families, there are fewer M & P's that provide more than one income.
Certainly, there isn't enough income in a business that usually has just one floor person at a time to provide for a full-time manager and extra employees -- and have anything left over for M & P.
So the scale has to get bigger. A store that needs more than one floor person at a time, or second and third locations. All that does is ups the ante and risk and work, and often doesn't produce any more income after the employees are paid.
I had four stores once, and found that while it provided me with longer vacations, it also turned out I didn't have the resources, the technical support and systems, and ultimately, the management skills to pull it off.
Anyway, as charming as the story in the Source about Recession Pies was, it was pretty amazing to read that they thought that little cart would provide income for not one, not two, but three full-time owners.
The other real eye-opening article was the "New Credit Card Limits are a Blow to Small Businesses," in the Bulletin Business section.
"As of April, 59% of America's small firms relied on credit cards to help finance their day to day operations..."
O.K. I can understand using credit cards for expansions or emergencies or seasonal buying, but "day to day operations"??!!
Again, I suspect the SCALE of the businesses are out of whack. You grow at the pace at which you can grow, and you pay for it as you go along. I pretty much try to pay for everything within my cash flow. If I use my credit card, it's as a tool, utilizing the money toward the beginning of a buying period, giving me easier access to online product, and so on.
But I pay it back every month. At least for the "day to day" part. Sometimes I might borrow a bit more to expand, and I can conceive of borrowing more for emergencies, but in both cases I would be paying it down each and every month until it was gone.
But if I had to rely on credit cards for "day to day" I'd know there was something wrong.
Back about 10 years ago, when I went to Consumer Credit Counseling, I had to cut up my credit cards. Since I had almost no resources in the bank, I had to be extremely savvy with my cash flow. It taught me how to manage the "day to day" expenses -- though I must admit, I miscalculated often enough that Western Bank made a fortune off of me for over-draft fees. So that when WaMu cut me off from that, they did me a favor.
Nowadays, I'm very strict with my credit cards. And I try to keep just enough cash in the bank to cover the cash-flow. That isn't a humongous amount of money, really.
Because the small scale of my M & P, the cash flow needed is of a similar scale.
All that borrowing from credit cards for "day to day" expenses tells me is the proportions are out of whack. Because day to day sales should cover day to day expenses.
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The Bulletin story probably is referring to "small business" as defined by the Small Business Administration, which can be pretty damn big (500 employees or more in some cases).
Also, the Source story says the Recession Pie people have gotten part-time jobs to supplement their income. They were naive to think a pizza cart could support three people, of course, but what the hell, they're just inexperienced kids.
Totally agree with both points.
Still, even 'small business' should be able to 'operate' with day to day revenues paying for day to day expenses, what?
Expansions, growth, emergencies, and seasonal purchases I understand.
Yeah, they're just kids, but like many small Mom and Pop enterprises, they misunderstood scale. One person usually generates one person worth of income, two persons generates two persons.
I think it isn't until you have something like 5 locations, and or the equivalent size that you can afford not to work for your Mom and Pop income. Up until then, all you've added is stress and risk and so on and you're STILL only making what you might have made with one store.
Which begs the question of why you became a small business in the first place? Did you open a small business with the intention of becoming a big business?
If you opened a small business with the intention of being "Lord of the Manor", it might be a mistake. "How much money have I made today, underlings?"
Duncan,
I have a slightly different take on the day to day expense comment. I would take it to mean that they are using credit cards as part of their normal operations. For example if you use your credit card for your product orders every month, and then pay off the credit card each month when it comes due. That activity would fit under the day to day operations. It does not mean that they are running a balance just using it as a vehicle for ordering product and cash flow smoothing. If you are using it to place orders instead of sending a check in with each order (harder to do in these days of ordering on line) and all of a sudden your credit card limit is cut to less then the size of your monthly order then you are significantly impacted, even if the debt is retired each month.
As I seem to recall from earlier postings that you also use credit cards in such a way.
You'll notice the article mentioned, however, that this kind of 'day to day' use of credit cards had increased from (I seem to remember) 44% to 59%.
And that was concerning.
Not surprising with sales being down. Some probably are carrying balances, others are probably running tighter on cash flow and a result need the float for a week or two. In some cases vendors that may have extended credit in the past might be requiring cash up front.
Not surprising at all.
So if the mom & pop stores don't have enough skills to support a bunch of employees, I guess we'll have to count on the big box stores to do that.
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