Managing Small Business Cash Flow Problems: A Guide
COVID-19 is currently making small business cash flow problems a real challenge – and managing employee payroll even more so. This guide is a quick overview of ways you can pay your staff to the best of your ability.
Cash flow is an important thing to manage at all times, but the current health crisis is only making this task more difficult. Perhaps you as a small business owner have always been diligent in making sure that your employees are paid on time, and a loss of business due to consumer fear is throttling your cash flow, making this task feel overwhelming.
Your employees come first when it comes to business expenses, and managing issues related to paying them should be your first priority. Not only will this ensure that your employees return to work when the crisis is over, but it will also ensure that your business reputation remains good and you can retain much of your customer base.
Assessing and working with your employees
Before you take any sort of action, make sure that you and your employees are on the same team. Working together through this difficult time will make managing your cash flow problems a bit easier, and can be done if you’re running a small business.
Let your employees and your payroll software company know right away if you’re having issues with cash flow, because not only will they appreciate the honesty, but they’ll have time to plan should you have to make adjustments to staffing. Your software company can also charge you for having not enough funds, and you’ll want to avoid extra fees.
Being dishonest will only create extra tension when you’re unable to pay your workers on time and will only ensure that your employees won’t return to work for you. Make sure you have an idea of what you’re going to do about the issue. It’s also a good time to see if you can make this time easier for your employees than otherwise. Being honest will reduce the chances that your staff will leave, or fail to return once the crisis passes.
Once you’ve completed this step, you may need to see which staff are needed and can be paid. It’s also time to look at any employee perks and overtime you may be paying. Is there anything you can cut? Unfortunately, you may find that you have an employee or two who aren’t needed, and you’ll have to act accordingly.
Ensure all of your employees are paid before you make any cuts to payroll, and should you decide to take measures such as staggering pay (paying some employees now and others later) be sure to ask for volunteers who may not be in as tight of a financial position as others. Otherwise, you and your small business could face legal issues, since staggering pay without consent is considered illegal. And if you do need to stagger pay, ask your highest earners to volunteer. These people are more likely to be able to absorb the lack of funds.
Financing can also help
Once you’ve talked to your employees, the next step to managing your small business’s cash flow problems is to use financing, if needed. This may ensure you get enough money to pay your staff and retain them, and you might even avoid having to make any cuts to your staff.
If you have a client with an outstanding invoice, and you know that client will pay you once the crisis passes, you can take out a fast loan against the amount owed. However, these types of loans come with a lot of fees and are generally expensive, but they can give you money when it’s needed. The cost of invoice financing can climb when an invoice takes a long time to be paid, so time is another factor you’ll need to consider.
Opening a new business line of credit is also an option, and you can use your business itself as collateral to obtain a large credit line. The benefit to this option is that you can borrow only as much as you need, and then only pay interest on that amount. There are generally no restrictions on use for a business line of credit. However, you’ll need to demonstrate that your business has had steady cash flow for some time and you may even need to use collateral to get such a loan, so this isn’t an option for those businesses just starting out.
If you can’t secure business credit and don’t have any outstanding invoices, short-term loans and hard money lenders are an option. The rates, however, are higher for short-term loans which are meant to solve cash flow issues quickly, and you should only take out one of these loans if you can pay it back quickly. Hard money loans are a last resort option, as they’re always secured against something physical such as property, and though there’s less paperwork, hard money loans should be avoided unless you are certain you can pay it back. Otherwise, you could lose whatever you’re using as an asset.
Having small business cash flow problems? Need an experienced accounting partner who can help you take your business to the next level? Contact us today for more information.
- 2021 Canada Tax Filing Deadlines: Everything You Need to Know - April 22, 2021
- A Guide to Advertising Tax Deductions for Canadian Small Businesses - February 11, 2021
- Small Business Expenses in Canada: Eligible Interest and Bank Charges - February 11, 2021