Companies NEED debt to pay payroll

Posted by idawrites on October 8, 2008 in Business, Debt, Finance |

This statement made me pause. Now, I don’t care if you support this massive monster of a mistaken bailout or not … the notion that companies must have credit to pay their bills and therefore employ you is the height of ridiculous. As a matter of fact, I’ve never worked for a company who used a business line of credit to pay their employees.

I work for a company that has exactly $0 in debt. We have 11 branches in 8 states and well over two thousand employees. We own every building we’re housed in. We own every piece of office equipment and every company vehicle outright. The owner of our company is a first generation immigrant to the United States. He built our company from the ground up… from one truck and to the corporation it is today, without one penny of debt.

Every sound financial principle that is written about your household finances can be applied to every business in the world. Spend less than you earn. Save up for the things you want. Put your money to work for you. Never pay interest!

I am reading the newspapers and listening to the news and watching the debates, just like most of the rest of the world. And, while I’m worried about how things are going to be happening in the short term, I have some serious comfort in the fact that the company I work for isn’t struggling to make payroll or keep the lights on or provide necessary equipment. I may not agree with all of the policies at my job, but it’s definitely fiscally responsible.


  • FFB says:

    IT is a bit shocking to hear that companies can’t pay their employees because of the financial situation. I guess there’s enough big companies out that in this situation that makes it a problem. But really, there’s too many people and businesses that rely heavily on credit. This has to stop as we can see it’s not healthy. Some say this will cut profits but I think only in the short run. All the big profits we saw over the years seem artificial now anyway.

  • I could sort of see how this would happen when companies are VERY young and haven’t had time to make a profit – but I hope that the huge majority of companies don’t rely on debt to pay their employees or keep their lights on. That’s not a business, it’s a losing venture and as FBB said it isn’t healthy.

  • Frugal Wench says:

    Actually, it’s the larger businesses who borrow the most. It’s not about profit, it’s about cash flow. Most of their equity is tied up in long term investments, such a securities and real estate. Most of the time, they can make payroll out of what they earn, but there are times when all they can manage to do is pay their creditors. Take Wal-Mart in Florida. Florida is a seasonal economic state, where the population drops by half during the summer months. During the summer, Wal-Mart may not actually make enough profit to keep operations going, keep their suppliers paid, AND make payroll. It’s a matter of who gets paid first. Without paying utilities and suppliers, there will be no stores where employees can work. Therefore, if cash flow on payday isn’t enough to cover payroll, but you know it’s coming in in a couple of days, you simply borrow it short term.

    You know, if a company has 10 employees, that’s one thing, but with thousands of employees, you have to have quite a lot of cash on hand to cover payroll. It’s easy to tell 10 employees that you can’t pay them for three days, because a big check needs to clear the bank, but not so easy to do that with the mega payroll big companies have.

    You’ll hear of the Friday after Thanksgiving being called “Black Friday”. That’s because most retail businesses operate in the red through much of the year, borrowing short term until they can pay it back during the Christmas season. Without credit, they would have to close down.

    • Momma says:

      I do see what you’re saying, but I still don’t think it’s a good reason. I work for the moving industry. 80% of our business occurs between May 15th and September 15th. We still have suppliers, maintenance on properties, utilities, payroll and all of our other bills that we need to pay every single week just like any other company. This company has met its obligations for 42 years without any kind of debt ever. Even big companies need to plan ahead, not behind.

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