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7 Tips for Business Owners That Can’t Meet Payroll

Only half of starting businesses make it past their fifth year. Unfortunately, for the employees of those companies that do not, it usually means that they lose their means of employment. If businesses do not shut down, they often go through phases where they are cash poor, which leaves the business owners in a hard position where they are not able to make their payroll. This is one of the worst situations that a company can find itself in; however, the good news is that there is hope. Here are seven tips for business owners to use when they cannot meet their payroll.

1.آ  Find a Financing Method

After youق€™ve discovered that you cannot make your payroll, you must take swift action. Understand that if you do not pay your employees, it can result in massive lawsuits, as well as state and federal tax liabilities. When you are in this situation you must make a decision that boils down to three choicesق€"conduct layoffs, make business changes that will result in liquidity, or close your doors. If you do not take one of these options, you will be held responsible for both fines and penalties. The best way to get the missing funds is to sell, borrow, or beg. Do what needs to be done to pay your employees.

2.آ  Use a Payroll Service

The two biggest crunchers of your cash roll are your sales tax and your payroll. You may not want to spend the seemingly unnecessary cost of investing in a payroll service, but it may just save your business come payday. A good payroll service is invaluable when it comes to making payroll as well as collecting and paying your payroll taxes.

3.آ  Donق€™t Stagger Your Payroll

You may think the best option is to pay your employees a portion of their paychecks instead of nothing it all, but typically this is not advisable. Although payroll laws vary from state to state, most states prohibit staggering your payments. Additionally, once you start owing your employees money, they likely will be extremely unsatisfied and will not put their whole effort to ensure that your business does not sink lower. Instead, consider asking your top-level, highest paid staff to forgo their paycheck for a couple of days so that your lower salaried employees can receive their paycheck on time.

4.آ  Utilize Your Resources

One way to raise capital in a jiffy is to discount the receivables under your possession and to liquidate your inventory. You may even want to consider taking as high as a 50 percent markdown on your receivables as long as it means that you will make your payroll. For example, if you have $20,000 that you are owed, it is recommended that you be willing to take $10,000 for it on the condition that you get the money transferred to you within the day. This allows you to raise capital immediately and pay your employees on time.

5.آ  Think Twice Before Growing Your Sales

One of the most common things that businesses do when they cannot meet their payroll is to move to increasing their sales automatically. Although, in some sense this makes sense, as growth in sales will create more profit, keep in mind that profit does not pay your employees, cash does. If increasing your sales means growing your inventory and accounts receivable, it can actually cause an immediate reduction in your cash flow. It is quite common for small businesses to expand their sales into bankruptcy. Before you go down the path of growing your sales, ensure that this will make your cash flow problem better and not worse.

6.آ  Donق€™t Pay Off Everything At the Same Time

As a small business owner, you should not line all of your monthly bills up and write out all the checks at once. This will leave you hoping that you put away enough money to meet the payroll, as well as all of your other expenses. Keep in mind that it is okay to write your checks one at a time by creating a holding pattern. Mark your envelopes with the date that you need to mail it out so that it is handed out on time. Staggering your payment dates can save you when it comes time for payroll.

7.آ Reformat Your Business

Once all of the dust has settled, and youق€™ve figured out a means of paying your staff and remain open for business, your primary focus should be on reformatting your company so that your cash shortage does not happen again. The best means of doing this is lowering your overhead expenses. Additionally, you should ensure that your employees know that you are in the gutter alongside them and are bearing the most financial burden you can to aid in getting your business back on its feet.