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Jr. Member
Apr 2, 2020
118 posts
45 upvotes
Jon Lai wrote: Sounds like a bunch of mismanaged companies that would probably go under even if COVID didn't happen. No empathy for these businesses IMO.
What a terrible, thoughtless comment. It's pretty hard to claim a company is mismanaged when the government mandates them to close.
Deal Expert
May 30, 2005
43755 posts
4398 upvotes
Richmond Hill
Pronoia wrote: What a terrible, thoughtless comment. It's pretty hard to claim a company is mismanaged when the government mandates them to close.
In a personal finances perspective, we're taught to have 3-6 months of expenses as a rainy day fund. Businesses should be the same. If you lose your job, you are able to survive 3-6 months before you get your next job - same with businesses. Without any sales, you are able to pay for 3-6 months worth of expenses. Just as not having a rainy day fund is an example of an individual who is poorly managed, a business without 3-6 months of rainy day fund is also mismanaged. I don't see how a business can assume there will always be business when an individual is supposed to always be prepared for being laid off.
Jr. Member
Jan 18, 2017
183 posts
137 upvotes
This shows that you might have a few misconceptions about how a business is run. Just run some simple numbers, using a 10% operating profit:

$100k annual gross sales at 10% profit = $90,000 in expenses / $10,000 in profit, or $7,500 in expenses / $750 profit per month.

At that rate, it will take you about 10 months to put away one month's worth of operating expenses. Or about five years to put away six month's worth of operating expense reserves.

"Rainy day funds" as they relate to a business aren't as simple as what you normally see in a typical personal finance conversation. When it comes to personal income, you get to keep 100% of what you make, and budget accordingly. In a business, you don't have that luxury.

Now I'm not saying that businesses shouldn't keep a cash reserve, in fact the opposite: My opinion is ALL businesses should have a cash reserve for emergencies. But the other side of that coin is that it needs to be acknowledged that it isn't always easy to just magically make a reserve appear. It often requires a lot of sacrifice, which can be hard for a lot of businesses to stomach.


Jon Lai wrote: In a personal finances perspective, we're taught to have 3-6 months of expenses as a rainy day fund. Businesses should be the same. If you lose your job, you are able to survive 3-6 months before you get your next job - same with businesses. Without any sales, you are able to pay for 3-6 months worth of expenses. Just as not having a rainy day fund is an example of an individual who is poorly managed, a business without 3-6 months of rainy day fund is also mismanaged. I don't see how a business can assume there will always be business when an individual is supposed to always be prepared for being laid off.
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Canadian & US tax guy
Deal Expert
May 30, 2005
43755 posts
4398 upvotes
Richmond Hill
crossborderguy wrote: This shows that you might have a few misconceptions about how a business is run. Just run some simple numbers, using a 10% operating profit:

$100k annual gross sales at 10% profit = $90,000 in expenses / $10,000 in profit, or $7,500 in expenses / $750 profit per month.

At that rate, it will take you about 10 months to put away one month's worth of operating expenses. Or about five years to put away six month's worth of operating expense reserves.

"Rainy day funds" as they relate to a business aren't as simple as what you normally see in a typical personal finance conversation. When it comes to personal income, you get to keep 100% of what you make, and budget accordingly. In a business, you don't have that luxury.

Now I'm not saying that businesses shouldn't keep a cash reserve, in fact the opposite: My opinion is ALL businesses should have a cash reserve for emergencies. But the other side of that coin is that it needs to be acknowledged that it isn't always easy to just magically make a reserve appear. It often requires a lot of sacrifice, which can be hard for a lot of businesses to stomach.
I understand how businesses are run, I just don't agree that it is correct. You argue that it takes 10 months to put away one month's worth of expenses, when in fact, the business should be starting with 3-6 months worth of expenses from day one. If you don't have this as your starting capital, it means you are not yet ready to start this business and are stretching yourself too thin.

I am not surprised that you, or most business owners, have this thought, though I think it is not financially responsible. The economy has been booming for so long that people have forgotten what the bad times can be like. People are buying pre-con condos with 5% down, maximizing their leverage, and even finding ways to get 2nd or 3rd mortgages in order to qualify for and buying those properties that only works in the best case scenario.
Penalty Box
Apr 5, 2013
4653 posts
1829 upvotes
markham
Jon Lai wrote: I understand how businesses are run, I just don't agree that it is correct. You argue that it takes 10 months to put away one month's worth of expenses, when in fact, the business should be starting with 3-6 months worth of expenses from day one. If you don't have this as your starting capital, it means you are not yet ready to start this business and are stretching yourself too thin.

I am not surprised that you, or most business owners, have this thought, though I think it is not financially responsible. The economy has been booming for so long that people have forgotten what the bad times can be like. People are buying pre-con condos with 5% down, maximizing their leverage, and even finding ways to get 2nd or 3rd mortgages in order to qualify for and buying those properties that only works in the best case scenario.
...and that will all get corrected in the next 2-3 years as prices drop and projects struggle to get finished
Deal Expert
May 30, 2005
43755 posts
4398 upvotes
Richmond Hill
cardguy wrote: ...and that will all get corrected in the next 2-3 years as prices drop and projects struggle to get finished
...and in essence, that's what I'm foreseeing with small businesses that are fiscally poorly managed. They were set up to fail in all situations other than an optimal business environment.

I understand the situation is tough but there is something really wrong with these small businesses if most of them are saying they will fold when it hasn't even been two months yet. The government loans and grants should be helping businesses make the transition easier and less stressful, or prevent layoffs from happening - except for extraneous circumstances, but if a business will otherwise fail because of a lack of government loans/grants, then in most cases they were mismanaged to begin with.
Deal Addict
Dec 13, 2007
1584 posts
78 upvotes
Toronto
It is not a proper way to run business sure, but that really is irrelevant. It is fundamentally unfair to demand that some of the population take one for the team (aka take on more debt) when the rest of us have protected jobs and incomes. If the govt forces you to close, it has to make you square at the expense of everyone.
Deal Fanatic
Oct 7, 2007
6813 posts
3064 upvotes
Jon Lai wrote: I understand how businesses are run, I just don't agree that it is correct. You argue that it takes 10 months to put away one month's worth of expenses, when in fact, the business should be starting with 3-6 months worth of expenses from day one. If you don't have this as your starting capital, it means you are not yet ready to start this business and are stretching yourself too thin.

I am not surprised that you, or most business owners, have this thought, though I think it is not financially responsible. The economy has been booming for so long that people have forgotten what the bad times can be like. People are buying pre-con condos with 5% down, maximizing their leverage, and even finding ways to get 2nd or 3rd mortgages in order to qualify for and buying those properties that only works in the best case scenario.
The question for these situations becomes whether we want the government to bail these people out? I think the answer to this question might lie in the original objectives of the bailout. Why is the government bailing companies out? If you ask me, it is partly because many companies were MANDATED to shut down through no fault of their own and this puts alot of financial pressure on affected businesses that they weren't anticipating and that isn't in their control. This also negatively affects any employees they have. And I think most of us agree that we value our small businesses and we want to support and encourage them to continue to succeed. However, the example cited above may not fall into this category and the banks should be doing the proper risk assessment before lending to such individuals taking into account that any type of financial crisis can happen at any time.
Deal Expert
May 30, 2005
43755 posts
4398 upvotes
Richmond Hill
choclover wrote: The question for these situations becomes whether we want the government to bail these people out? I think the answer to this question might lie in the original objectives of the bailout. Why is the government bailing companies out? If you ask me, it is partly because many companies were MANDATED to shut down through no fault of their own and this puts alot of financial pressure on affected businesses that they weren't anticipating and that isn't in their control. This also negatively affects any employees they have. And I think most of us agree that we value our small businesses and we want to support and encourage them to continue to succeed. However, the example cited above may not fall into this category and the banks should be doing the proper risk assessment before lending to such individuals taking into account that any type of financial crisis can happen at any time.
I completely agree. I don't think we shouldn't bail them out, but they should be with the intention of paying for wages and keeping people employed. What bothers me is how small businesses appear to continue to demand more, saying they can't afford rent, utilities, etc., whereas those, in my opinion, should be covered by your own contingency fund. Unfortunately, a lot of businesses are taking these handouts for granted.
Jr. Member
Apr 2, 2020
118 posts
45 upvotes
Jon Lai wrote: In a personal finances perspective, we're taught to have 3-6 months of expenses as a rainy day fund. Businesses should be the same. If you lose your job, you are able to survive 3-6 months before you get your next job - same with businesses. Without any sales, you are able to pay for 3-6 months worth of expenses. Just as not having a rainy day fund is an example of an individual who is poorly managed, a business without 3-6 months of rainy day fund is also mismanaged. I don't see how a business can assume there will always be business when an individual is supposed to always be prepared for being laid off.
While I agree that a business should have reserve funds, It's laughable to suggest that a 3 to 6 month "rainy day" fund is enough to survive the COVID 19 crisis. Even if your business is allowed to be open after 3 to 6 months then what? It's going to take years for the economy to recover. Without adequate government support is it smart to pump 6 months reserve funds into a business (for me this would be $800,000) only to see the business fail upon reopening?

What you are claiming is total NONSENSE. You can't blame the small businesses for having trouble during this crisis.
Deal Expert
May 30, 2005
43755 posts
4398 upvotes
Richmond Hill
Pronoia wrote: While I agree that a business should have reserve funds, It's laughable to suggest that a 3 to 6 month "rainy day" fund is enough to survive the COVID 19 crisis. Even if your business is allowed to be open after 3 to 6 months then what? It's going to take years for the economy to recover. Without adequate government support is it smart to pump 6 months reserve funds into a business (for me this would be $800,000) only to see the business fail upon reopening?

What you are claiming is total NONSENSE. You can't blame the small businesses for having trouble during this crisis.
Unforeseeable events happen. This is one of them. Your competitor undercuts you, or your product/services become irrelevant due to innovation, etc., that surprises you out of nowhere. These events are comparable to COVID in that sense, and a well-managed business would be prepared on how to weather the storm.

Additionally, I did not say that small businesses should not no trouble at all during this crisis, but rather they should not be in so much trouble that they are at risk of closing. It's like the difference between chapter 7 and chapter 13. A well managed company would not find themselves looking towards chapter 13, which is what a lot of news have been about, that they are going to close because they couldn't do business for 6-8 weeks (up until now).
Newbie
Feb 16, 2017
4 posts
Has anyone managed to get clarity on whether the 75% reduction is applied to rent solely, or would that include rent + HST + TMI.

I am not able to find a resource which explains this. Maybe it has not been released..?
Deal Addict
Dec 13, 2007
1584 posts
78 upvotes
Toronto
jomich wrote: Has anyone managed to get clarity on whether the 75% reduction is applied to rent solely, or would that include rent + HST + TMI.

I am not able to find a resource which explains this. Maybe it has not been released..?
Not TMI for sure. HST should not matter as it is refundable.
Newbie
Feb 16, 2017
4 posts
Thank you for clarifying. Do you mind sharing where you sourced that from so I may refer to it when making this arrangement with my LL. Thanks again!
Jr. Member
Apr 2, 2020
118 posts
45 upvotes
Jon Lai wrote: Unforeseeable events happen. This is one of them. Your competitor undercuts you, or your product/services become irrelevant due to innovation, etc., that surprises you out of nowhere. These events are comparable to COVID in that sense, and a well-managed business would be prepared on how to weather the storm.

Additionally, I did not say that small businesses should not no trouble at all during this crisis, but rather they should not be in so much trouble that they are at risk of closing. It's like the difference between chapter 7 and chapter 13. A well managed company would not find themselves looking towards chapter 13, which is what a lot of news have been about, that they are going to close because they couldn't do business for 6-8 weeks (up until now).
For a business to realistically survive a 3 to 6 month government mandated shut down with no government aid they will need to have at least 2 years expenses in reserve NOT 6 to 8 weeks as you are claiming. Maybe if you're a one man show running a business out of your basement this would be possible, but for the majority of businesses, it is not.

Comparing the COVID pandemic crisis to being undercut by a competitor demonstrates that you don't have a full grasp of what's to come. Maybe you're the poor manager?

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