Consumer Spending Trends, Cash Flow Challenges, and the Retail Worker Safety Act

Hey, everybody, it's Gene Marks, and welcome to another episode of the Paychex THRIVE Week in Review podcast. I am coming to you from Dallas, Texas, this week where I am speaking to an industry association and we are going to be talking about some of the news that affects those guys, but also affects you and me, other people that are running small businesses. We take three stories out of the news that happened during this past week, and we talk a little bit about them and, hey, let's get started. 

The first story comes from the Wall Street Journal this past week. There is concern among bankers about consumers paying their bills. In fact, the Wall Street Journal says there's even a little bit of alarm among bankers about this issue.

Investors have been on high alert for any clues that a recession is in store after two years of higher interest rates. But unfortunately, they're also seeing that some low-income borrowers or lower-income borrowers are struggling to make payments. Some of the data from here; people have been dealing with higher interest rates on their credit cards. The average rate of credit cards in May was almost 22%, according to federal data. That was up from 15% in 2019, which is why around 9.1% of credit card balances turned delinquent over the past year – the highest rate in over a decade – according to an August report from the Federal Reserve Bank of New York. 

Mark Mason, who is the Chief Financial Officer at Citi Bank, echoed some of those concerns. He said that his bank has seen delinquencies picking up and more consumers carrying balances. Where there is growth in spending, he says he said it's driven primarily by Citi's affluent customers. 

So, point of interest, banks are getting nervous. They are seeing not only credit card rates go up, but obviously the impact of those rates among consumers paying their bills and we're starting to see more of these credit card balances and consumer loans starting to go delinquent. We're not in panic mode yet, but it is still a concern among a lot of economists that as consumers have less ability to spend, obviously consumer spending is going to decrease. 

And I don't care what kind of business you're in, whether it's B2B or not, you're a distributor or construction company, you know, selling nameplates, all in the end, it all comes down to the consumer buying this stuff. And if the consumer starts slowing down on their purchases, that is certainly a concern. So, that is certainly something we want to keep an eye out for. 

The next bit of news is kind of like that, except it's not about consumers, it's about small businesses. According to a new report from Payments, that's pymnts, it's called from Cash Flow Pain to Working Capital Gain, this report has found that 70% of small businesses have less than four months of cash to cover operating expenses.  By the way, rule of thumb should be six months of cash you have to cover your operations. 

Forty-five (45) percent of U.S. small business owners forgo their own paychecks due to cash flow shortages, 22% struggle to cover basic bills, putting nearly 1 in 5 of those business owners at risk. With more than 90% of their revenue consumed by operational costs, small business owners are left often juggling that small, that fragile cash flow, and it is an issue and the issue is getting broader. 

So, not only do I just talked about consumers starting to feel a lot of pressure on their spending with higher interest rates, credit card rates and, delinquencies going up, but now we're seeing a rise in small businesses that are struggling with getting money in and not having enough cash to pay their bills. 

That is another concern when small businesses employ half of this country's workforce and provide half of the country's GDP if they're having cash flow issues, that is certainly not a good sign for the economy. 

Hey, a couple of pieces of advice on your cash flow. I just, I, I can't help it as a business owner myself, and also as a CPA, whenever you have the ability to charge in advance, do it. Taking a deposit is not an inconceivable thing, particularly if you're in a service business and it's a bigger project. So many people do it. 

You know what I do in my company, we sell blocks of time, we provide services, but we don't do work with any businesses unless they buy a minimum four-hour block of time, and then we charge our time against it in 15-minute increments. When that's used up, I send it to accounting, and so, you know, the customer can buy another block of time. It's worked really well for me for like 20 years. That way the cash is upfront. We can keep it small even if it's just four hours of work, or it can be bigger, but you know, at the same time I get the cash in the bank instead of chasing it down.

One other bit of advice I have for you when it comes to cash flow, give in and take credit cards. I know that it is a, you know, there's a fee that's involved, and I know the fee can be somewhat significant – 2 to 4% depending on the service that you use. But whether you take your credit card, mobile payments, PayPal, whatnot, you don't have to offer it to all of your customers, but you do want to offer it to those new customers or ones that you're not sure about their credit, and you know it's worth paying that fee if you can get the cash in the bank. 

You don't have to do that forever. If a customer establishes themselves as a good paying customer going long term, you can always take them off credit card and just send them an invoice and give them terms, but it really is the best way to handle particularly new customers or customers that you might have some concerns about paying. All this should contribute to your cash flow. 

The final bit of news comes from New York state this week, and this has to do with employees, particularly employees in retail shops. Just last week, New York state enacted the Retail Worker Safety Act. Retail employers with more than ten employees will be required to develop and implement a program to prevent workplace violence. Furthermore, it directs the Department of Labor to create a model workplace violence prevention training program. By the way, this comes from JDSupra.com. It also requires employers to provide training on these programs.

For the first time, New York will mandate the installation of panic buttons at certain workplaces, or the use of wearable or mobile phone-based panic buttons for retail workers employed by companies with more than 500 employees nationwide. Obviously, the reason for this is to try and reduce the amount of incidents that happen at retail shops and to enhance worker safety.

So, what do you need to know if you own a retail store? Well, number one, you need to create a violence prevention plan. Get with a labor attorney to do it. You might want to lean a little bit on AI programs like ChatGPT to get you a head start. Train workers in de-escalation techniques. You want to hire training for people to come in and teach your workers how to operate as safely as possible. And if you have more than 500 employees section-wide, you know, just, you know, 500 employees wherever across the country, you need to install panic buttons in your retail stores.

Now, this requirement doesn't start until Jan. 1, 2027, and the requirement can be satisfied if you want to provide wearable technologies like a mobile phone-based, you know, application or a button that you wear around your neck, an employee wears that they can push. But you need to have panic buttons addressed by Jan. 1 of 2027. These are all more costs for your business, but in the end, they're all, will provide for better worker safety.

Well, that's the news for this week from Dallas, Texas. My name is Gene Marks. Thank you so much for joining me on the Paychex THRIVE Week in Review.

If you need any tips or helps or advice in running your business, by all means sign up for our Paychex THRIVE newsletter. Go to paychex.com/thrive. Again, thank you so much for joining. We'll see you again next week. Take care.

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