Over the last few months I have met and spoke to a few businessmen that have owned and run their biz (successfully) for at least the last 2 - 3 decades. Not publicly traded.

They HATE banks and hate the idea of debt.

These men are retirement age.

#FinanceTwitterJa

//Thread

They are relatively financially savvy and they know their way around a set of financial statements.

When I dig deeper tho, they don’t hate the banks for no reason, they have a DEEP distrust of them.

In fact, one of them was a banker for 3 decades before starting his company.

Their balance sheets are primarily all equity.

Their advice to me is to stay away from debt.

The more I dig into it, is the more stories about FINSAC rare their heads.

The issue that this creates though is that this hate has forced them to run their co. on a cash basis.

Or a pseudo-cash basis.

All publicly traded companies run their companies on an accrual basis.

Accrual basis just means that you recognize the revenue when an economic event happens (eg goods are delivered, contract signed, etc.) not when the invoice is paid.

Cash basis is the opposite.

Revenue is recognized when cash is paid.

The impact this has is it restricts the options they choose to exploit because some opportunities require more lengthy payment terms — which is why debt can be useful to help smoothe cash flow in between.

It also restricts their ambition.

They don’t want to expand too much (and create more economic value for the country) because they don’t want to take on any debt.

For example, they would never list their companies because they are comfortable as is.

But they are also vulnerable in crisis. Rather than having a lifeline they can draw on in a crisis, at the first sign of any trouble with their cash flows their first response is to just cut expenses (either salary reductions or layoffs).

Contrast that with many of the listed..

companies that either didn’t have to lay-off any at all (because they either had cash reserves to rely on, or they could access cheap debt to tide them over) or in some cases they expanded and grew in this environment.

Don’t get me wrong, running it on a pseudo-cash basis can be healthy.

It means you live and die by cash flows.

The issue is this ignores the reality of life. There will always be disruptions.

Properly used, debt gives you flexibility when these disruptions occur.

Note I am not saying you should go and get debt, but it just struck me how this hatred & DEEP distrust of banks have crippled our economy.

It has also stifled productivity growth.

These men won’t borrow to invest in new machinery or technology to boost productivity.

They have systems that have worked for them for years and they are comfortable.

Why bother taking on the stress and potential risk of a bank “stealing everything you risked and built” just to grow some more when you and your current employees are comfortable?

It’s actually a rational response.

While I understand their reticence and I don’t blame them 1 iota, it partially explains (IMHO) why Jamaica’s growth rate has been so stagnant.

All of these medium sized companies that employ say 10 - 40 ppl that could take on debt...

to expand, or drive revenue or profit growth just can’t bother.

It’s not worth the risk to them.

But the environment is very different than it was during the horrible FINSAC years.

The issue is that it has been so burned into their brains, that they won’t ever change.

They likely tell their kids to do the same, and others (like myself).

If I didn’t understand how the current environment is different, to be honest, I would be deathly afraid of banks and I would build my business the same way.

So that’s also another reason I love #FinanceTwitterJa. It’s to share financial literacy for many aspects of life, not just investing but thinking about all of your financial affairs in the current economic environment not the one of the past.

This is also why it is so important that the FINSAC report be completed and fully ventilated.

So that these issues can be fully fleshed out and discussed and we can have a reckoning as a society.

Also so we can demonstrate how different it is.

This is also why I think it is very important for all of us to be engaged in the political process because policies matter.

They make a HUGE difference. Through these two entrepreneurs alone, hundreds of people have been impacted one way or another.

I am sure they have shared those same experiences with at least 200 people each, and that’s likely to be very conservative.

All of those ppl could easily be scared to deal with banks now, which erodes trust in the system which causes the banks to have to demand more data.

That demand for more data and requirements further erodes trust which creates a negative reinforcement cycle that stifles productivity.

So, I believe a full reconciliation of FINSAC could go a long way to helping to unlock latent productivity as the above cycle is slowly broken.