The Importance of Having a Buffer

[pennyk]

Hi Skater,
Sorry to hear about your difficulties.

Are you following up to get payment that is owing from the company? Have you reported them to ASIC? Make sure it is clear that you are owed money, so that when they go bankrupt, you can get what you are owed, or at least part of it.

After owning a small business myself and then working in the business that bought ours, I think I can safely say that I would never work for a small business. It is far too stressful knowing what the financial issues are. I would be wanting to see a couple of years financial statements before making a commitment!!

But I think it is inexcusable not to pay wages. We floundered and faltered along for a couple of years, and was close to trading whilst insolvent at times, but I managed to pay wages on time all the way through. Other things may have been late, but wages were always paid on time. I was shocked when I worked for the company that bought me out, and at least twice they either "changed" pay dates (without notice) or didn't pay on time. That made me really angry.

In terms of our buffer, we don't have one at present, having had all sorts of financial disasters as well. Well, we could draw down on loans which I'm working on paying off ahead of time at the moment. But before we start actively investing again, we will have.

Pen

 

[handyandy]

Hi Skater

Thanks for sharing.

My wife and I hae always worked on about a 3 month buffer and up to 4 years ago I had an insurance policy that covered the outstanding debts.

One certainly plans to be well covered for any future event but you really don't want to have to test it like you guys have had to.

Just think, things are looking up and the New Year is just around the corner with all new oppurtunities awaiting you and your husband.

If you are at the next meeting in Glebe I will make a point to shout you and your husband a drink to see in the 'Prosperous' New year

Cheers

 

[skater]

Hi Skater,

Are you following up to get payment that is owing from the company?

Yes, we are undertaking legal action at the moment.

 

[perky29]

Really good post Skater.
Also during this your hubby was renovating that house as well (or finishing it off). Not a bad effort at all!!!!!!!!
On the question of buffer, I think we are sometimes pushing it a bit much. Lately we have been down to our last $300 in the cheque account - unheard of for us. And the LOC is down to around 8k too.
This is something we intend to work on in the new year. We do at least have some 18k of shares we can draw down if need be, and perhaps sell an IP - but would rather not.

 

[Bargain Hunter]

One of our children decided that during this period would be a good time to undertake their very worst in behaviour & had us quite stressed out too.

Hey Skater,

Maybe you could have got a good price for her on Ebay and released some of the financial pressure.

Regards

Andrew

 

[skater]

Really good post Skater.
Also during this your hubby was renovating that house as well (or finishing it off). Not a bad effort at all!!!!!!!!

We finished the reno the week after we came back from our trip, & put it on the market immediately. BTW it still hasn't sold, so it is on the rental market now.

On the question of buffer, I think we are sometimes pushing it a bit much. Lately we have been down to our last $300 in the cheque account - unheard of for us. And the LOC is down to around 8k too.
This is something we intend to work on in the new year. We do at least have some 18k of shares we can draw down if need be, and perhaps sell an IP - but would rather not.

I really urge you to work on that. You really don't know when something is going to come along to upset the applecart. We only have the NRMA shares that were given to us several years back & as a last resort would have cashed them in. As it turns out, we didn't need to, so still have them intact.

 

[skater]

Maybe you could have got a good price for her on Ebay and released some of the financial pressure.

Who in their right mind would want to purchase a teenager in full tantrum mode?

 

[geoffw]

Who in their right mind would want to purchase a teenager in full tantrum mode?

Darn. I was going to put mine on ebay!

 

[Bargain Hunter]

Who in their right mind would want to purchase a teenager in full tantrum mode?

Tarantino is always looking for something new to scare the daylights out of audiences.

"The Teenager", watch as this unbelievable story unfolds. In a quite Sydney street in the middle of October something strange is about to happen...

Regards

Andrew

 

[skater]

Geoff & Bargain Hunter, you two are incorrigable.

 

[geoffw]

Geoff & Bargain Hunter, you two are incorrigable.

And comments like that just incorrige us!

 

[Merovingian]

In that time he was paid only 1 week from the new job & 5 weeks as an electrician. A grand total of 6 weeks pay in 5 months.

Hi, Skater.

I know exactly how you and your husband must have felt during that time.

Here's my horror story...

I was employed by a company in August, and abruptly quit in November. The employer near the end of my tenure was unable to pay wages to its employees, but I gave it the benefit of the doubt, and still kept turning up in the morning, doing my bit.

So at first I was 1 week behind in wages. Not a major problem, it'll come.

Then it was 2 weeks. I could see the company derailing so I started to simply learn adaptable skills, (I am in software development), and still turned up to work as I knew more time in work it would look good on the résumé. I decided I would leave, no questions asked, no exceptions, no warning, no nothing, if it reached 4 weeks.

Then I was 3 weeks behind, so I started politely quizzing as to where the company is planning on going, and morale of the other guys at the company hit rock bottom. I got answers to my "quizzing", which may help me later...

Then I was 4 weeks behind. Employer made lame excuses, promised, and never delivered. So the next day I didn't turn up — I sent a resignation letter the previous evening, basically politely saying:

I quit. You have 7 days to pay up in full or I will initiate legal action.

Seven days passed and nothing happened, so I started legal action. Ex-boss's reaction was pathetic ... laughable almost.

Things are looking up for 2006, though, and I think there are a couple of lessons to be learned from my story.

The first of which is to plan for the worst, which includes an exit strategy and contingency plans, as The Y-Man pointed out. I made a promise to myself I'd leave at 4 weeks of non-payment.

The second of which is to put it all into perspective. I could take 4 weeks of non-payment, but many couldn't. I took the bad with the good — I gained some experience, discovered how not to run a company, initiated legal action which I view as a game rather than a burden, (it can only make me stronger I guess, and viewing it in a non-negative light makes it easier ... perhaps I'm a sadist).

So that's my horror story. I guess crap like this can happen to anyone, and you simply have to make plans for if/when the worst happens.

 

[pennyk]

in these situations don't forget about checking where superannuation payments were up to. that's usually even further behind than wages,

Pen

 

[thefirstbruce]

Skater, thanks for telling that painful story.
Gee it drives home the risks of working for small business, especially startups.

I know a couple of people who have taken leave without pay, or taken holiday leave from their current job, when starting a new job. This gives them the option of pulling the pin on the new position if it doesn't live up to expectations, and going back to the original position, as if back from holidays.

If the company that screwed your husband around had wanted him so bad, I'd have put in a few clauses in the contract protecting his interests in the early days. If the company wasn't prepared to meet his needs, then that would be saying more than their sweet but empty words in hunting him for the job.

Your story drives home how critical cash flow is, not only in business, but when leveraging property. It also drives home that employers are not Gods, no matter how much some employees and the tax office might want them to be.

 

[skater]

in these situations don't forget about checking where superannuation payments were up to. that's usually even further behind than wages,

Pen

Penny, in our situation there was no super, as he was working as a subcontractor.

 

[CairnsInvestor]

Don't buy anymore property until Buffer is built up & Strong!

I know the last post on this topic was in 2006, but I think the "buffer" issue is VERY IMPORTANT! Particularly after what has happened to me in the past 6 week & into the next few months. You think everything's going along rosy until quite a few "rainy days" or "storms" interrupt your life & then you think "S**t, I could go broke here!" Also expecting income to come in on time & then they it gets pushed back by 3 months & then the stress starts building!!

The rise in interest rates hasn't affected me at all; just unexpected bills to the tune of around $5,000-$7,000 that I hadn't budgeted when I put my 6-month budget projections in June. I've had to close a side business which I has cost me a lot in exit costs!

I've batten down the hatches down by tightening the belt really tight, got some extra credit cards (now maxed out), sold a few items & unfortunately had to cancel my monthly donations to charities . Hopefully I can weather the storm until Jan/Feb 2008 next year; otherwise the bottom of the money jar will be scraped until every last dollar can be found!

After Jan/Feb 2008 when I get paid my $10,000+ in bonuses (which I was expecting in Nov/Dec), I'll be saving like mad to build up a decent buffer of around $15,000-$20,000 in case those storms come my way again. No Christmas Gifts for me this year - just have to pull through.

 

[Sunfish]

Tough lesson to learn CI. You'll make it because you are not in denial and will be a better investor in future. You will not skate so close to the edge again, and a big thumbs up for fessing up.

 

[Don and Liz]

me too

I always measure my buffer in terms of TIME not DOLLARS.

me too - this was the first thing we had to LEARN after leaving paid employment.

When making an investment in something new I also choose to look at risk in the same way ie how many years will it take out of my buffer if the worst case senario happens.

 

[Rixter]

In my experience the best form of a buffer is a LOC kept topped up to maxinum 80% LVR where ever possible -you only pay interest on the balance not the credit limit.

Credit cards are no good, and saving for a cash buffer is just down right inefficient and unpractical and severely has an opposite effect of reducing your cash flow.

Hope this helps.

 

[BoatBoy]

In my experience the best form of a buffer is a LOC kept topped up to maxinum 80% LVR where ever possible -you only interest on the balance not the credit limit.

Credit cards are no good, and saving for a cash buffer is just down right inefficient and unpractical and severely has an opposite effect of reducing your cash flow.

Hope this helps.

Phew, thanks for that Rixter, I was secretly starting to think that maybe we were doing it wrong NOT having vast wads of cash as a buffer .

Got a Humungous LOC sitting there untouched though (and it should stay that way)

Dave