Saturday, January 31, 2009

The economic crisis and how it affects my enterprise

I am just trying to breathe after a staggering Rs21,000 cash flow only loss in this month January 2009. I must point out that this loss has not provided a salary for me or for that matter even lunch money, so I have to live on charity! I was hoping that my woes were over, but it seems that they are certainly not. I will show in detail all the items of my loss when I have analyzed all the components. It is something I don’t need to be ashamed off or proud of its just fact. As I am a UK qualified Chartered Accountant, I can have the auditable figures, out within a minute of the month ending, something not possible for any other enterprise on earth!! Or at least I like to think so. Show me I am wrong!

Of course if I include depreciation or amortization, the loss would be three times. I need a reserve of at least 75K a month just to be able to set aside funds to maintain the capital of the business at the current levels. So in reality my business is wasting away and not actually growing. That’s a horrifying thought as that was not my intention.

Apart from the normal problems I have encountered in production and the added problems this year of falling prices of King Coconuts, and Coconuts due to a glut in the market, I have to face a whole new problem partially caused by the economic crisis.

I have complained sometimes nauseatingly about the unreliability of my staff, who never turn up for work, with excessive absenteeism. Surprise! all decided to come to work this month with near perfect attendance and then claim the attendance bonus I used to offer. That was counterproductive as attendance fell, so I decided to abandon that incentive. I am now so grateful that it was removed as I realized that the perfect attendance was due to them not having any other source of income, with other providers of income being unable to give them the odd jobs they became used to. Those households are also suffering a cash flow problem themselves.

It sounds funny but it is no fun to me as it hurts my pocket more now, as there is no goal congruence between the workers and the employer. The workers want to maximize income, even if they don’t work, and I have to maximize profit. Actually if I cut 25,000 in wage payments, I could probably get into a break-even, meaning some are paid for no output! Making me sound like a big fool to employ the unemployable!

If you think I am just complaining, I have a worse report from a company I am advising: an Organic Farm, which employs 65 people. For the first time in 10 years under the current ownership, the farm has perfect attendance, and so all the workers draw the perfect attendance bonus of Rs2,000 each per month. This has resulted in the company having to pay out an additional 100K a month for wages. Tea their main product fell in output from 600kg in December to 200kg in January due to the drought conditions. So the loss ballooned due to lack of product and ballooning wage payments.

What both these examples show is that people take advantage of (I would go as far as to say exploit) the reliable employer in hard times and ignore and almost stick it to them in good times, by finding higher paid short term work and using their main job as insurance!

11 comments:

The Intellectual Redneck said...

If this doesn't make you want to fly to Washington and slap your legislator, nothing ever will. Congress gives itself a $93,000 raise to stimulate the economy. It must be nice to have that kind of extra petty cash laying around. Instead of tightening your belt in this recession, wouldn't you like an extra $90,000? Never mind the record deficits. Never mind that ordinary Americans are struggling to pay their bills. Our Congress thinks it is far more important to be able to dole out perks to itself.

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