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You've Cut Non-Essential Costs and Still Can't Make Payroll, Now What?

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Caitlin Carragee

When it comes to starting and running a small business, there are a million moving parts, to say the least. Keeping track of rent, utilities, insurance, inventory, recruiting and staffing, payroll...the list goes on and on. And when you are that close to the trees, it can be hard to see the forest—your overall business cash flow.

Cash flow, the money moving in and out of your business, can be challenging. Even the best forecasters can fail to account for a natural disaster or other such occurrence that might impact business continuity—or you might just have an off month. In previous posts in this series, we discussed how to rationally prioritize business expenses, and what should be considered "essential" expenses when cash flow is tight or has dried up all together.

But even if you've gotten extensions on payment terms from your vendors and suppliers, or consolidated your credit card debt, you might still be struggling to make ends meet when it comes to essential costs like payroll.

So what can you do when you need to find cash fast?

If you're looking at your small business books and you are at $0 or in the negative, you will need to find money for essential expenses like insurance, rent, utilities, and payroll—and find it fast.  You should always consult your financial advisor or accountant before taking any additional steps, but here are some options you might consider:

  • Borrow from your 401(k) or retirement plan. If the plan allows for borrowing, an owner can borrow up to 50% of vested benefits or $50,000, whichever is less (assuming the account balance is more than $20,000). These loans are typically easy to arrange with the plan administrator (who may be the business owner) and interest rates tend to be on the low side.
  • Consider a business loan. While SBA loans and other traditional commercial loan products can take months to close, there are some online providers and platforms to obtain cash faster. Other types of business loans to consider, from a time perspective, include merchant cash advances and invoice financing (factoring). If you do choose to go with an online option, you should be careful to do your research and consult with a financial advisor, because small businesses can be easy targets for predatory lenders. (See our post on preventing your business from ruining your personal credit for more information in this regard.)
  • Stay close to home. Personal resources of an owner, such as a home equity line of credit, can be a stopgap for business needs. If the line is already in place, all you will need is to write a check to the business as a draw on the line. If there is no existing line, it may take too much time to close on this type of mortgage on your home to meet your immediate expense timeline, but check with your lender.

Bottom Line

While a cash flow problem might seem like the end of the world, particularly if you are a new or first-time small business owner, it's important to take a deep breath and realize that you have options. The action you take will depend on one or many factors, for example how quickly you can get the money, the total cost of the loan over time, the potential for long-term impact on retirement savings, risk to home ownership, and more. You'll want to consult your accountant or financial advisor, and potentially your lawyer, to understand what the immediate, medium-term, and long-term consequences will be of the various options available to you.

Have you ever found yourself unable to make payroll? What did you do? Tweet us @SurePayroll

This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.