I have a question. Interest payments. Unless you have a high enough revenue stream to cover the cost of interest, arent you eroding your capital ?
Games people play with cash flow
111–120 of 150 posts
Re: Games people play with cash flow
#112The author creates a false dichotomy when they write that business is either about making profit or managing cash flow. Making a profit requires cash flow management, but managing cash flow does not require making a profit. This article does talk about managing cash flows in a way that involves never making a profit. First, and tangentially, it's interesting that real estate developers do this all the time. Second, i…
There are some flaws within your argument that i like to point out.
> why cable companies regional monopolies are extant, but also that their continued existence relies on the preservation of those monopolies.
it's a moral judgement about monopoly that you imply (it being bad). But the article makes no such judgements at all, and that by bringing in this you direct the argument towards one of ethical behaviour, rather than logical deduction and application of such for businesses.
> no different than a Ponzi scheme. It makes the fatal assumption that subscriber growth can continue ad infinitum.
That's not the defining feature of a ponzi scheme - which is that it is using the investment of new investors to pay out existing investors (and only doing so, rather than undertake a business). The cable companies _do_ produce something, that of cable provision, maintenance and services. Even if they assume infinitely growing subscriber base, it is not a ponzi scheme.
And growth doesn't have to be ad infinitum - just large enough to last long enough until the next disruption (e.g., starlink might disrupt cable companies). There's nothing wrong with a company dying - the bag holders and creditors who hold them last will lose out when they are disrupted, and this is a good outcome. Investment has risks, credits has risks.
Re: Games people play with cash flow
#113Earlier quoted context omitted.
The point is that improving the cash position of the restaurant (traditionally a low float, low margin business), by moving customers payments forwards in time, allows them to improve their margins by pre-paying their food vendors. This is in contrast to the example right before, where speedy deliveries from a lean manufacturer motivates downstream distributors to switch suppliers, despite taking a margin hit, becaus…
So why isn't there a futures market for selling these meats? The farmer/producer would like certainty of sale, at a certainty of price. This is exactly what a futures option gives them - they can offload the risk of price fluctuations (and demand reduction/changes) in the future, and someone else can speculate on this (and make more profit, or loss). It seems stupid for a farmer/producer to take on this risk, rather…
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Re: Games people play with cash flow
#114Earlier quoted context omitted.
I caught that too. It is false in several ways that destroy the rest of the argument. First because less skin in the game doesn't make you make bad decisions, it just makes it easier. As such every argument following this point is destroyed by "assume we make good decisions anyway", which is just as valid as "assume we make bad decisions from now on". Second, because your skin in the game probably doesn't change, ins…
"Second, because your skin in the game probably doesn't change, instead the total amount of skin in the game gets larger." But the dimensions of the game grow as well, and that is where mistakes can be made. Some founders are probably better bosses/managers in a collective of five than in a collective of fifty. If the company grows slowly, they may improve their skills/catch up. If it grows in a sudden leap, which is…
That is one of many reasons that I alluded to why it might be a bad idea to take investors.
Re: Games people play with cash flow
#115What I got out of this is that you shouldn't deal in absolutes. There are ways to successfully create businesses with and without outside capital.
Re: Games people play with cash flow
#116The bit about TCI (a cable company with a lot of debt in the 70s) is super interesting. I've read before about how companies don't always see debt as a bad thing, and how they can move money around, but it always seems like magic. From the article - "And indeed, Malone’s strategy required TCI to show a loss for pretty much forever; for the next 25 years, it was never in the black". As the article mentions, Amazon fol…
That's always been my conflict with the deficit the US government runs. - I believe we are approaching unsustainable levels of public debt - If a CEO were offered debt on the terms that the US Government gets, they would be fired for not taking it - If a CEO allocated funds the way the US Government does they would probably also be fired. - Using debt for growth capital is great - Using debt to get better terms from…
People always compare government finance with business finance or household finances. It's an analogy everyone seems to just love.
Problem is government finances work completely differently in ways that are so fundamental as to make the analogies completely useless.
It would take more than an HN comment to enumerate every subtlety of why that's the case, but if you were to start you could probably begin with the fact that a government can print money and extract any resource it wants from any entity it wants to at any time at the barrel of a gun, and you and your CEO friend can't.
Re: Games people play with cash flow
#117Earlier quoted context omitted.
The point is that improving the cash position of the restaurant (traditionally a low float, low margin business), by moving customers payments forwards in time, allows them to improve their margins by pre-paying their food vendors. This is in contrast to the example right before, where speedy deliveries from a lean manufacturer motivates downstream distributors to switch suppliers, despite taking a margin hit, becaus…
So why isn't there a futures market for selling these meats? The farmer/producer would like certainty of sale, at a certainty of price. This is exactly what a futures option gives them - they can offload the risk of price fluctuations (and demand reduction/changes) in the future, and someone else can speculate on this (and make more profit, or loss). It seems stupid for a farmer/producer to take on this risk, rather…
Futures markets work for commodities where what you get from one seller is essentially interchangeable with what you get from another seller.
There are futures markets for livestock, but that's not going to cut it for the high-end restaurant market that this example comes from--the restaurants this story is about are internationally famous and will have exacting food quality standards that are hard or impossible to meet from a futures market. The suppliers they work with are in turn focused on supplying high-quality meat and produce that isn't really interchangeable enough for a futures market.
Farmers who grow commodity crops (corn, soybeans, etc.) or commodity livestock often do use futures markets in the way you describe, or work with financiers who essentially do it on their behalf.
Re: Games people play with cash flow
#118This may be true for small lifestyle type businesses.
But some problems can only be solved with VC money. Because of time limitations.
You may only have a small window of opportunity to capture a certain market.
If you grew linearly, and built up product idea A, in order to fund product idea B, in order to fund product idea C, then by the time you’re done with product idea B, a decade may have passed by. You’ve also grown older, and may not have the energy of your younger self anymore.
Also, a competitor, one with a larger funding pool, may have jumped in and captured that market, right in front of you.
Re: Games people play with cash flow
#119Earlier quoted context omitted.
That's always been my conflict with the deficit the US government runs. - I believe we are approaching unsustainable levels of public debt - If a CEO were offered debt on the terms that the US Government gets, they would be fired for not taking it - If a CEO allocated funds the way the US Government does they would probably also be fired. - Using debt for growth capital is great - Using debt to get better terms from…
People always compare government finance with business finance or household finances. It's an analogy everyone seems to just love. Problem is government finances work completely differently in ways that are so fundamental as to make the analogies completely useless. It would take more than an HN comment to enumerate every subtlety of why that's the case, but if you were to start you could probably begin with the fact…
A government can print money, however the very value of it will decrease because there will be more money for the same amount of products to buy, and inflation will quickly offset the effect of this newly printed money. Moreover many citizens, especially those who have savings, hate inflation and will fight against such a trend. Taxes and various other "resource extraction" also are limited because more and more citizens will fight against such measures, up to deliberately reducing their income or living the country.
A business can in a way "print money" and "extract resources" by raising its prices. In many trades their customers will remain customers because switching would be more expensive. But there is also an obvious limit there: the amount of prospects will decline and at a given point more and more customers will depart.
Re: Games people play with cash flow
#120The author creates a false dichotomy when they write that business is either about making profit or managing cash flow. Making a profit requires cash flow management, but managing cash flow does not require making a profit. This article does talk about managing cash flows in a way that involves never making a profit. First, and tangentially, it's interesting that real estate developers do this all the time. Second, i…
Is Starlink about to make cable TV and satellite TV obsolete?