As a small business owner, you wear many hats – from managing operations and fostering client relationships to overseeing finances. Among these responsibilities, ensuring your employees are paid timely is paramount. There may be times of the week, or times of the year, when cash is tight for your business and you have to make difficult decisions. One item to ensure that you can afford is your payroll. But, what happens if you can’t? Lets take a look at what to do if you can’t afford payroll.
In this article, you’ll learn about strategies to help affording payroll even during tight financial times. At Paper Trails, we’re committed to arming business owners like you with the knowledge and tools needed to navigate the complex waters of business management. Let’s go!
There are a few reasons why you must be able to afford your payroll and why you must be able to pay it timely. The majority of states have certain pay frequency laws about how often employees must be paid their earned income. For example, in Maine, employees must be paid at least every 16 days. In Massachusetts, you must pay hourly employees either weekly or biweekly. You can pay salaried employees semi-monthly and, if they voluntarily agree, monthly.
Another reason paying your employees timely is important is that it increases employee engagement and retention. Paying your employees on time has several implications:
Typically, not being able to afford your payroll is a result of low cash flow. This could be a result of a variety of reasons. Maybe your business is in its’ slow season, or maybe you have an unexpected bill that you had to pay. Either way, below are some cash flow strategies that may help your business if you are in, or have been in, a situation when cash is tight and payroll is due.
Think about adjusting your pay period to when you have the most cash during the week. For example, hospitality businesses often receive the credit card income they received Friday through Sunday on Monday. In this case, maybe a Tuesday pay day works better for your business as payroll will be taken out on Monday when you have the most cash in the bank.
Or think about a one time pay date change. While it’s not a long-term solution, temporarily adjusting the pay date can give you the breather needed to manage immediate cash flow challenges. Ensure you communicate transparently with your employees and adhere to any legal guidelines related to wage payments in your jurisdiction.
Do you pay your employees bi-weekly? If so, consider switching to a weekly pay date. While this doesn’t reduce the overall payroll expense, it can provide short-term cash flow relief as the amount paid per week is less and does not have as big of an impact on your cash flow. Be sure to communicate any changes to staff well ahead of a pay frequency change.
In times of financial strain, especially when struggling to meet payroll, assessing and reducing non-essential business expenses can offer immediate relief and better cash flow management. Steps to consider could include:
Traditional workers’ compensation policies might require large upfront payments, straining your cash flow. A pay-as-you-go model aligns the premium payments with your actual payroll, resulting in small payments on a per payroll basis. This ensures that you are spreading out the financial burden and ensuring you only pay for what you use. Pay-as-you-go also increases the accuracy of your workers’ comp payments, often resulting in less variance during a workers’ comp audit.
If you have non-essential assets, consider liquidating them to free up some cash. This strategy requires careful consideration to ensure you’re not jeopardizing your business’s future growth, but it can be a viable short-term solution. This could include liquidating company equipment, inventory, etc.
Sometimes, an external infusion of funds is the best way forward. Platforms like Payro offer tailored lending solutions for businesses, allowing you to bridge the cash flow gap without compromising on your payroll commitments. While these options do comes with interest payments for your business, they provide an option for you and give you the time to review your financial options. Check out this guide for more information on Payro and how it works.
Navigating the financial challenges of running a business is no easy task. Yet, with the right knowledge and tools, you can sail through even the toughest times. Remember, at Paper Trails, we’re always here to guide you and you can contact our team for help here. By understanding the importance of payroll and utilizing the strategies above, you can ensure that your business remains on solid footing, even during financial storms.