How does a small business of 1-99 employees stay in business?
Just curious as to how some companies can afford to pay salaries, business trips, hotels, petty cash, etc. and still keep the business going. Where does the money come from? How much is a small business debt?
- GravyLv 61 decade agoFavorite Answer
We do it by having fewer than 100 employees, for starters. Labor is a company's greatest ongoing expense, which is where massive layoffs come from. It averages around 30% to 50% of a firm's operating expenses.
Business trips are sales trips -- they generate revenue. A $2000 trip to see a $40,000 client is a $38,000 net gain.
The money comes from sales and contracts with clients, same as any other business.
Business debt isn't like consumer debt. The small businesses who try to grow too fast are the ones who get themselves in trouble with debt. Those people think they need the latest and greatest of everything and that the business will run itself if it's properly equipped. So they get the property, the furniture, the computer stations, a receptionist, an art director, a bookkeeper, maybe a company vehicle, and certainly a Mastercard -- all before they've been open for a month.
To buy a franchise like a Kinkos or McDonald's means you have to start $300,000 in the hole, THEN start spending your cash flow on rent, wages, heat, telephone, and any suppliers who are brave enough to issue you credit. Whatever's left, you keep.
In the case of a product or service, usually the right thing to do at that point is get your hands on revenue-generating equipment, because despite all this evil debt talk, the main undoing of a business is undercapitalization. If you have cash, you spend that. If you don't, you spend credit.