The US is possibly the only developed nation in the world that believes in "at will" employment, and yet all of those other developed countries (including pretty much the entire G8+) have thriving business market, lots of businesses able to start up, take a shot, go bust, and/or thrive.
Keep in mind payrolls are for work that's already been performed.
Having enough cash set aside for the work that's been performed plus a month of future work is having 3 payrolls worth of cash set aside at all times.
I could see it working if all companies had to do it, but in a scenario of two identical companies where one can spend more freely they're probably more likely to grow.
There are a lot of factors that would contribute to running a business without a month's cash on hand. But I wouldn't say that the business owner is _seriously_ incompetent.
It takes almost no financial discipline to set aside enough for a couple of months worth of salaries.
If things are getting that tight where that money becomes in jeopardy, the odds of a miraculous turn-around are negligible, and you should have been rethinking everything a lot sooner.
Should you be required to know all of these things beforehand before starting a business? Who am I to judge. Ultimately these types of comments display the pure position and perspective of privilege that is so typical on this forum. I am not saying that is a bad thing, we typically talk about the elite companies, and what types of business practices should be followed, just know that this isn't anywhere near close to the majority of American businesses.
I am not one to participate in the current "woke" culture, but
> It takes almost no financial discipline to set aside enough for a couple of months worth of salaries.
This statement drips of pure privilege to me. A couple of months worth of salaries? Are you kidding? Sometimes you have to worry about paying rent on time! We all aren't bootstrapped, VC-backed unicorns. Most of the businesses out there earn every single dollar and have to make tough decisions such as whether or not to pay your employees on time or call the Hobart technician to repair the dishwasher so you can stay open. Oh by the way, the Hobart guy said you need to replace it and it will cost you 10,000 dollars. I think most small business owners are fortunate to have even a couple of weeks set aside.
"Oh shit, well yeah, I guess I would have fired me too."
A mature response for sure, but a highly unlikely one.
Also I think it's a tad naive to think one can possibly know the enumerable circumstances that would force your hand. Suppose you are a company dependent on logistics. Bam, Iraq war. The price of a barrel of oil skyrockets. Your shipping costs have quadrupled. You can keep to your principles and vow to not lay off a single employee, because as you said, this would "demonstrate failure", or you can keep your business and regrettably let go of a few workers in order to keep up with costs. You can try rising your prices, but pretty much a forgone conclusion that a 4x price increase will net you a significant decrease in customers, unless you are a rare unicorn, some good or service one cannot simply be without.
(the above scenario is basically what happened to my father's small business in 2005. Could not keep up with the rise in transportation costs, and cheaper, less quality competitors moved in. Consumers went with the cheaper option. It happens.)
Unfortunately, things go wrong. Sometimes you lose your job without warning and your house burns down at the same time. Sometimes, things go wrong no matter how hard you try.
The same is true of companies. Sometimes, you just can't plan your way around things going wrong.
Given enough businesses and enough trials, it's a certainty that some leaders will drive them off a cliff.