Additional Math Pages & Resources

Monday, May 24, 2010


This week I am going to focus on single-word subjects for the blog.

Here's a word that's in the news a lot lately. DEFICIT.

What does it mean? An excess of expenditure compared to income.

What is its opposite? The opposite term is surplus, or more income than expenditure.

Was it just invented by our current government? No, not at all.

Is it a math term? Yes.

It's related to those symbols I covered a few months ago - less than and greater than.

There are lots of situations when you might run out of money but that DON'T reflect deficit spending. Those are called a cash-flow crisis. Among other solutions, you might require credit. Here's how it happens:
  • Teachers are often paid on a 9-month schedule. They can run out of money in the summer unless they have saved up during the year, or have credit so they can borrow.
  • Small but growing businesses might have to order lots of goods to restock their open shelves, but don't sell those products quickly enough to pay their suppliers on time. They need to borrow.
  • Churches and charities often receive the majority of their income at the end of the year when donors are doing their tax planning. They have to borrow to make it through the summer or fall.
Here's a real-life example of deficit spending and a cash-flow crisis.

A local restaurant opened and was immediately popular. But it nearly failed in the first few months. Why? Because the owner had over-spent before opening and used up all the credit he could get. He had to pay the lenders back on a fixed schedule.

Even though every table was full and there were people waiting for seats, he couldn't handle the unexpected costs of buying more plates, glasses, pots and pans to keep up with the orders. And there wasn't room for more dishwashers to clean things fast enough. The stress in the kitchen caused the chef to leave, and the owner couldn't do everything himself.

You might say they had a plate-flow crisis!

The solution was to get an experienced chef who (1) was used to this sort of thing, and (2) had the courage to turn down a few bookings, and (3) would defer taking a salary for awhile until the restaurant could stabilize its cash flow.

There are other solutions to a cash flow crisis besides credit. You can come up with ways to get people to pay BEFORE you have to spend any money on delivering products. Publishers know the beauty of subscription products. The customer pays up-front, and you deliver the subscriptions over time. But you have to be sure you don't spend all the money and find yourself unable to deliver the last issues!

I'm probably boring you. You may have an attention deficit.

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