There are a lot of things that can impact a business’s cash flow and start causing a knock on effect down the line. For instance, when there is not enough incoming and too much outgoing at the time that employees need to be paid you could have a shortfall. This can put your business in a bind as it is the law that employees must be paid what they are owed for hours worked and at the regular pay period.
When you find that you can’t meet payroll, it doesn’t have to mean that you shut your business down, but it can be a very precarious situation. Not only are you required to do this by law, but it should be a cause of concern for you to make sure that you are able to take care of your employees so they can take care of themselves and their families.
In this article, we will go over what some of your options are when you have to come up with payroll money as soon as possible.
Worst case scenarios
Before we get into what could work to help you pay your employees, we should look at what the worst situations could look like. The two worst case scenarios would be to lose the business or to sell off some assets.
Although it may look bleak when you can’t pay employees, usually you can avoid having to close up your business. It is more likely to happen when these events begin occurring more regularly and cash flow issues remain a persistent problem.
Before that happens, when you have tried numerous other strategies, it is a good idea to start liquidating assets. You will likely be assigned a secured or unsecured creditor. There is a difference between secured and unsecured creditors so make sure you know what you are getting into. You may want to focus on liquidating only certain assets like stocks so you can continue to run the business.
Cancel discretionary spending
While many of your business expenses are essential for running your business, there are items that can be stopped for the time being so you can use the money saved to make your payroll for this period.
Only stop payments to some of your expenses if you know that your business can function without them being paid and if it doesn’t land you in trouble with your creditors. For instance, you may have some types of insurance that are not required by law that you can pause for the time being. Or, you may have some money that automatically goes into maintenance for your equipment.
Take out a loan
Taking out a loan to make payroll should be one of the last things you do to make sure your employees can get paid. However, when you know that you have a temporary cash flow issue then it could make sense. For instance, when you have accounts coming due that will more than cover what you took the loan out for it can work out.
