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can't make payroll

What a small business owner should do when they can’t make payroll

December 26, 2012

can't make payroll

What should you do when you can’t make payroll?

It takes a lot of work as a small business owner to get people to believe in your vision and want to work with you to help the business grow. A new business isn’t guaranteed to succeed; therefore when small business owners successfully attract employees, they have even more of an obligation to pay the staff on schedule as agreed. So what should a small business owner do once the finances are calculated and it becomes evident that the company can’t make payroll?

To sum it up concisely: do everything possible, but be strategic. First, notify your executives or the highest level of staff in the company and then work from the top down. Explain the situation and your plan for how revenue will or will not rebound in the next pay period. Paying your employees and payroll taxes are the top areas of focus in this situation so talk with your managers and see if they will forgo their paycheck and receive it at a later time so that you can pay other employees.

If this plan doesn’t work, take a look at your outstanding accounts receivable and see if you can negotiate a discount contingent upon immediate payment. In the near term, this may hurt to not receive the full amount outstanding, but being able to inject some liquidity into your company will give you the cash you need to make payroll.

Another option available

Another available option for small business owners is to take out a hard money loan. These loans are backed by parcels of real estate and often have higher interest rates than other loans. However, businesses are able to receive funding in approximately five business days after which they have a minimum of a few months’ payback time.

There are also personal lines of business credit that can be taken out or extended; in addition, owners can also pull together their own personal finances to show they are heavily invested in providing for their employees.

Hours and revenue streams

Lastly, businesses facing payroll difficulties can also cut hours until revenue streams are back in order.

The most important thing to remember during this time is to communicate with your staff. Leaving employees in the dark could send them running for the hills; instead, after speaking with your executive team, speak with your employees and let them know the next steps of action.

And ultimately, if you aren’t able to find a solution to pay your employees, it may be time to consider closing the company in order to forgo the hefty taxes that will be imposed by continuing to operate your business without sufficiently paying staff.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.


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