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Tips for making payroll, even when it seems impossible

There are resources and solutions available to all business owners

Lani Langton //April 10, 2020//

Tips for making payroll, even when it seems impossible

There are resources and solutions available to all business owners

Lani Langton //April 10, 2020//

Whether you are a business owner with one or 500 employees, the financial burden of payroll can feel the same. Many business owners stay nights worrying about how to make sure employees’ paychecks are good. Equally as many business owners, in desperation, have borrowed money from family and friends, refinanced personal homes or sold off needed equipment just to meet the short haul.

Unfortunately, actions like these (and many more) can trigger an out-of-control situation that can potentially include collections or even jail time.

There are remedies to these dire scenarios. Tested and proven financial concepts, understanding cash flow, and creating effective strategies can mitigate and even prevent being backed into a payroll-meeting corner.

First, you must understand what the business’s current financial position is: How much money is wrapped up in collections? How much is in billable services and/or inventory? Can some of these assets be sold and how fast? How much cash currently exists in all accounts? Is there untapped credit available?

As a busy business owner, it can feel daunting to completely understand finance, even for the most educated and savvy business owner. There are many balls in the air and focus can be disjointed, making it nearly impossible to give every area consideration – until it becomes that day’s problem.

A concept called “break even,” affords the business owner an understanding of and creation of a cash flow projection. This is not a bank account balance. This is a model that shows profit, or the amount of money left after all costs and expenses. These numbers can be calculated, even with the natural ebbs and flows of business.

Creating a cash flow projection is an honest examination of the business’s team (or teams). Are members productive in their roles? And do their actions lead to profit?

The next step is putting together financial resources to help with cash flow. Start with the business’s bank to inquire about a line of credit, and when possible, include credit cards in the business’s name. Most businesses don’t want to pay for credit when they are doing well, but available credit is a hedge against unforeseen issues that could arise when a business is forced (by a number of business circumstances) into a position where having credit available saves the day.

For those who have been in business less than two years and those who have low credit scores, bridge loans and high-risk loans and funding can be a possibility. However, in times of crisis, trying to find lending can be difficult. Established credit lines and business credit cards with little or no balance – secured before a dilemma hits – work best.

Other very practical measures are possible: Ask for slower-pay terms with suppliers; many bills including rent, mortgage, water, sew and trash can be paid a little late. A best practice is to call vendors and inquire about new payment arrangements.

It’s important to be transparent because everyone appreciates upfront and honest discussions. Ask for new arrangements when necessary and speak about how it will help the business meet payroll.

A business’s employee base is its most important asset and bending whichever way possible to ensure the care of personnel always pays off.

But first know that the issues are real and must be faced. When problems meeting payroll are faced with information, knowledge and focused, solution-based thinking, everyone wins.

And remember: Just about everything in a difficult experience can become a lesson learned. If the crisis hits, don’t panic. Consider all the angles and don’t be afraid to ask for help. And learn how to avoid the situation in the future.