How to Make Payroll When You’re Short on Money

If you had to ask a business owner what their worst fear was, you most likely would invariably hear a concern about not being able to pay their employees. When it comes to business, there are often high and lows, but with small businesses the lows could result in a lack of capital to provide compensation to the lifeblood of the company. This not only kills morale, it can result in the closure of business and a heavy amount of taxes and penalties.

In an American Bankruptcy Institute study as cited by Inc. Magazine, 43,546 businesses filed for bankruptcy in 2008. I’ll let you process that for a moment. The fact of the matter is that many businesses do experience shortfalls, even if they don’t go under. There are a variety of reasons for this: it could be a down season, a natural disaster of some sort, or an IT outage that takes your business offline for a significant amount of time. What’s important, though, is that you act as quickly as possible to avoid the consequences of not being able to make payroll. Here are some things that come to mind:

Leave Your Pride at the Door

The worst thing you can do to your employees is not tell them what’s going on. Oftentimes, business owners who are going through a dearth in funds try their best to avoid telling anyone because of their own pride. They are embarrassed and would prefer to turn it around on their own without losing face.

When this does not work, the people who are hurt most are the employees as they depend on that paycheck to pay their bills, purchase food, etc. Give your employees as much time as possible to prepare for the lost paycheck.

Find a Method of Financing

Because of the penalties that can incur from not covering payroll, it’s advised that you make payroll anyway possible. First and foremost, you can try to recover any outstanding receivables that are owed to you. You might have to take a hit to get the money now (sometimes as much as 50%), but getting half that money now when you need is as opposed to 100% when you’ve lost your workforce makes more sense.

You can also try liquidating anything non-essential to raise capital quickly. Another step is to take out a small business loan. While a loan from a bank may take too long and require an extensive amount of paperwork, there are lenders that will offer you an unsecured loan, depending on your ability to pay it back. This could provide the necessary cash flow to keep you afloat for the short term.

Restructure

Unfortunately, for many businesses, the best option might be to lay some employees off. Although nobody likes to put people out of work, it could mean the difference between some people retaining their jobs or a complete closure. Again, if you do find that this is the only option, make sure to give those whom you’re laying off as much notice as possible so they can look for a new job.