Tell this fellah what hes' doing wrong.

DubTony

So a fellah owns a convenience store that's been struggling pretty much since he opened it. He blames his problems on cash flow.
I talked to him on the phone and he revealed to me that his wholesaler wouldnt' do busines with him unless he had a bank guarantee or a substantial deposit. The fellah couldn't get the bank to work with him so he paid the deposit.

He ran up arrears with the wholesaler to a point equal to the amount of the deposit. He's stopped dealing with that supplier and now deals with several other suppliers on a cash basis. (Cash being euro notes).

But here's the bit I don't get. He is currently paying the original supplier €2,000 a week to pay off his arrears, so that they will give him his deposit back. His arrears are equal to the deposit.

I told him to dump the supplier, as they have the money anyway and to stop eating into his cash flow. But he's arguing the point that the money is better in his bank a/c and so he's determined to get. He doesn't seem to grasp my point of view this and it's causing him a major headache as his store is not stocked properly.

This seems ludcirous to me. I've directed him to this thread. His name is Matt. Please tell him what he's doing wrong.

Darragh29

DubTony wrote: »

So a fellah owns a convenience store that's been struggling pretty much since he opened it. He blames his problems on cash flow.
I talked to him on the phone and he revealed to me that his wholesaler wouldnt' do busines with him unless he had a bank guarantee or a substantial deposit. The fellah couldn't get the bank to work with him so he paid the deposit.

He ran up arrears with the wholesaler to a point equal to the amount of the deposit. He's stopped dealing with that supplier and now deals with several other suppliers on a cash basis. (Cash being euro notes).

But here's the bit I don't get. He is currently paying the original supplier €2,000 a week to pay off his arrears, so that they will give him his deposit back. His arrears are equal to the deposit.

I told him to dump the supplier, as they have the money anyway and to stop eating into his cash flow. But he's arguing the point that the money is better in his bank a/c and so he's determined to get. He doesn't seem to grasp my point of view this and it's causing him a major headache as his store is not stocked properly.

This seems ludcirous to me. I've directed him to this thread. His name is Matt. Please tell him what he's doing wrong.

How much does his supplier have on deposit belonging to him??? It's a bit unusual that he didn't have money to pay his invoices with the wholesaler and went into arrears but has 2K a week or 8K a month now to pay off the arrears. If he has this kind of cashflow coming in, and is paying 2K a week off, surely he won't be long getting on top of the account at that rate, unless it is in the red by many thosuands of Euro???

DubTony

Darragh29 wrote: »

How much does his supplier have on deposit belonging to him??? It's a bit unusual that he didn't have money to pay his invoices with the wholesaler and went into arrears but has 2K a week or 8K a month now to pay off the arrears. If he has this kind of cashflow coming in, and is paying 2K a week off, surely he won't be long getting on top of the account at that rate, unless it is in the red by many thosuands of Euro???

From what I can gather, his supplier allowed his account to go into arrears to an amount equal to the deposit paid. It seems they then refused to supply him further. Fair enough. I don't know what he was doing to run up arrears like that. But he's paying it off now. The supplier used some of the money on deposit to reduce his balance. I reckon he should just let them balance it and get on with his business. He has no intention of dealing with them again anyway. Meanwhile he's looking at unstocked shelves as he can't pay for supplies. If he runs to the local cash and carry daily he can at least stock the place from cash flow. I told him even to go to Tesco and pick the stuff up there in small amounts. His cash is being whittled away at a rate of €2K a week and he won't see anything for it until the account is paid off when they will give him his deposit back. It looks like they're collecting it from him so they can give it back to him. That's what a savings acount is for. If he keeps on paying this money out, he'll be out of business soon. His customers are already going elsewhere.

Darragh29

DubTony wrote: »

From what I can gather, his supplier allowed his account to go into arrears to an amount equal to the deposit paid. It seems they then refused to supply him further. Fair enough. I don't know what he was doing to run up arrears like that. But he's paying it off now. The supplier used some of the money on deposit to reduce his balance. I reckon he should just let them balance it and get on with his business. He has no intention of dealing with them again anyway. Meanwhile he's looking at unstocked shelves as he can't pay for supplies. If he runs to the local cash and carry daily he can at least stock the place from cash flow. I told him even to go to Tesco and pick the stuff up there in small amounts. His cash is being whittled away at a rate of €2K a week and he won't see anything for it. If he keeps on paying this money out, he'll be out of business soon. His customers are already going elsewhere.

It sounds to me like he needs to put his own business first and his previous supplier a firm second. I'm not sure I can see the logic of what he is trying to do here! If for example he has 25K on deposit with a wholesaler and he owes them 25K, the logical thing to do would be to let them take the deposit to clear the account and for him to bank 2K a week and use this as working capital. Either way, 2K a week is a lot of money to be tied up in paying back a credit facility that would appear to be fully secured.

antoinolachtnai

Matt needs to go and see his accountant and get him to sort this mess out. It should be pretty obvious to the accountant what to do. On the face of it, you are right, but there might be some subtlety there.

Anyway, professional advice is the way to go here.

elgransenor

''So a fellah owns a convenience store that's been struggling pretty much since he opened it. He blames his problems on cash flow.''

I think his problem is described here ie you cant have cash flow problems in a cash positive business unless it is inherently unprofitable or badly run from the word go.

I was in c stores for 18 years and you could trade unprofitably for a long time as you are cash flow positive. By that I mean you are getting working capital from all your creditors/suppliers and are being paid cash daily by your customers.

I think he needs to consider exiting this business.

DubTony

I can only imagine that he's been over-spending, or over-staffing, or both. I have never looked at his outgoings / expenses. His rent seems standard enough based on store size and runs at less than 5% of turnover. I'm of the opinion that rent should never be more than 5% of turnover given the tight margins in the business. He has made cut-backs in staff in the last few months and from what I can gather it looks like he's been tightening things up. Assuming he's now on the right track, sorting out this situation should see him bring it around.

Lplated

DubTony wrote: »

He ran up arrears with the wholesaler to a point equal to the amount of the deposit.

Slow student here - according to the above - the amount he owed the wholesaler equaled the amount of the deposit - isn't that the end of the problem?

i.e. use the deposit to close out the debt to the wholesaler, no further debt owed to wholesaler and 2k a week currently being shipped in that direction remains the shopkeepers (Matts).

Did i miss something?

DubTony

Yeah I thought I was missing something as well. But he told me that was it.

Anyway, just got a text from him. As of yesterday evening he's clear. Looks like the light finally went on. Thanks lads.