SPREAD COSTS OVER MULTIPLE BUDGET PERIODS

On the one hand the overuse of financing and the over-availability of easy credit, especially in the housing industry, is a big part of the reason for our current economic struggle. At the same time virtually every segment of our country's economy was built over the last hundred years on the the leverage of outside capital investment. It is not the use of outside investment capital or borrowing that got us into trouble but rather the sometimes lack of prudent, restrained or intelligent use of borrowing. It remains important for us, as business men and business women, to make that distinction because our economy will recover and advance and a key part of that re-growth will be the return of normalized "credit markets'. As part of that process we need to apply a "lessons learned" approach to the use of capital investment and the leverage of financing.

Most businesses today do not fund their day-to-day operations entirely with internal cash but rather they utilize a "working capital line" or operating credit line at their bank. This type of short term, usually "revolving" commercial credit facility allows the business to operate steadily during times of uneven cash flow, seasonality or intermittent earnings periods in order to pay suppliers, maintain payroll, cover operating expenses and generally bridge the timing of revenue vs. costs. The lack of availability of such financing means that many organizations cannot sustain themselves through uneven revenue periods, economic "down-cycles" or various transition periods. Many businesses, governments and non-profits operate through uneven revenue cycles and are especially vulnerable during periods of calamity such as natural disasters, a dependence on seasonal buying (Christmas) or periodic shifts in customer buying habits.

Hopefully, the current "pain" that so many businesses, city, state and county governments and virtually all other types of organizations are experiencing will provide a "lessons learned" approach that causes "financial decision makers" to build sufficient cash funds and capital reserves while balancing the use and utility of outside capital investment and borrowing as an important resource to be conserved yet leveraged intelligently.