Missing payroll is probably one of the most stressful events in a business owner’s life. When speaking to a business owner about it, the stories they often tell revolve around a time in their life when they lost a great amount of sleep. Having to miss payroll disrupts relationships between a business owner and their employees. At the very least, it’s embarrassing to admit to your employees that you don’t have enough money to pay them. However, missing payroll can create uncertainty, distrust, and the potential of losing great employees to another company. At the end of the day, no matter how much your employees love their jobs, your employees work to get a paycheck.
You Could Be Violating State and Federal Laws
Aside from the embarrassment factor and losing employee confidence, a business owner can get in serious trouble with the IRS for missing payroll. Missing payroll puts you at risk of violating of state and federal labor laws. So what is a business owner to do when they are about to miss payroll, totally disrupt any good established relationships with employees, and potentially face fines?
4 Courses of Action to Consider Taking
- Get a line of credit from a bank. This often takes months to organize and in today’s regulatory environment, the bank is going to want a ton of collateral. They might want to look at any homes, buildings, property you personally own. If you are about to miss payroll within the next 2 weeks, a line of credit from the bank is going to take much longer than the time you have. In addition, the line will need to be renewed yearly with certain restrictions.
- Ask friends and family for money. Although, if you want to continue being friends and a respected family member, it is smart to opt not to ask. Also, most friends and family members don’t always have the money to lend out and often times don’t understand why the money is needed so frequently when the answer is indeed very simple to understand.
- Speak to a factor. A factor will fund you money against your receivables up to 80 percent, however, there are many negatives. Most factors will take 2-3 weeks to make arrangements for you to begin receiving funds. All receivables will now be directed to the factor instead of you. As a result, your clients will undoubtedly find out that you needed funding. Down the road, it is very hard to move away from a factor. They seek long term relationships with clients because there is a lot of work on their end initially. The amount of due diligence they will do on your business becomes very expensive and extremely labor expensive.
- Use credit cards. This method will work. However, if there is an extensive payroll to pay, finding enough available credit to meet payroll funds can prove difficult.
Best Course of Action
The best option for a business owner who does not have time on their side is to consider a payroll financing/funding company. There are two key advantages to a payroll financing company. The first advantage is that they will usually provide you with an answer within hours. They could be able to transfer the money within 48 hours or less. A payroll financing company does not frequently require personal liens and will take alternative variables about your business into account. A band or factor base their decisions solely on a few specific aspects. Factors are not as flexible with requirements as a payroll funding company. A payroll financing company’s payments will be spread out over a period of time. This will make it a lot easier on your company’s cash flow moving forward.
Every business owner who has run a business long enough knows what it is like to miss payroll. It is the last thing you want because it sends a damaging message to employees that something is wrong. Also, legally, the government will not let you miss payroll and could force the business to be shut down. The government wants their payroll taxes. If they find out about a missed payroll from one of your employees, it will significantly affect your ability to continue doing business.
Financing Solutions (www.payrollfinancingsolutions.com) provides fast business funds of $5,000-$75,000 to good small businesses with sales of $350,000-$7 million that can be used for working capital.