Inštitut za ekonomsko demokracijo

Avoid bankruptcy, change ownership!

27 Day Cash Buffer

The ‘cash buffer days’ tells us how much time companies can go without revenues and still cover their operating expenses. The average time for the SME sector is 27 days. The liquidity crisis casued by virus disrupting the distribution chains on supply and consumer spending on demand side already lasts much longer and is expected to linger on for some time more. At the Institute fro Economic Democracy, we have proposed to use the crisis of today to establish broad-based employee owmership. There are three ways of doing this:

  • Translating government aid into employee equity by dillution of ownership of the receiving companies;
  • Putting legislation in place that allows to capitalize the future workers’ unemployment benefits to finance the buy-out of failing companies;
  • Having companies lower the expenses and wages, and partly paying workers in equity (transferred to appropriate employee ownership trusts with individual capital accounts).

“The shared equity option, like making workers depend on unemployment insurance, will ultimately reduce business profits. Paying workers in equity means reducing your own portion of equity. So, you’ll earn a smaller share of profits moving forward. Laying off, furloughing, or reducing wages and/or hours by more than 10% will likely also result in loss of profits moving forward. […] It stands to reason that these taxes will increase significantly in the future. Small business owners will face a choice: accept a reduction in profits caused by increased payroll taxes or lower wages for workers.”

Read more at: Worker Ownership as a Small Business Solution During Covid-19

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