ENT 650 Entrepreneurial Finance

What do you tell your employees if you can’t make payroll?

By Tina Jones

Running a business is not easy.  Running a business without the capital to make payroll is gut wrenching.  What do you tell your employees if you do not have the money to pay them?  After all, the employees are the backbone of the business. 

Payroll is one of the biggest expenses for many small businesses.  There are many reasons that you may not be able to make payroll.  Quite simply, it boils down to the cash flow in your business is not there.  For whatever reason, there is not enough money to cut the checks. 

As the adage goes, honesty is the best policy.  As humiliating as it can be, the employer must be honest and upfront.  Many times, it will not be a shock to the employee as they have seen tension or may even know that business is slow or payments are not coming in.  The honesty may help the employee prepare for the upcoming shortage or in an unfortunate circumstance, find another job.  If you have a good relationship with the employee, they may stay by your side until you make it through the rough patch. 

Now that you have it out in the open with your employees, you figure out how to solve the problem.  After all, as an entrepreneur, that’s what you do.  Find funds.  Easier said than done.  Take the time to explore your cash flow.  Find the leak or find potential accounts receivable.  Try to see if some of your accounts payable vendors can give you financing.  Look for financing through a traditional bank or even try to get a Small Business Administration loan.  The SBA is there to support small businesses.  They have loans available for COVID-19 and Disaster relief.  Personal funds are another option.  You might even have to use a personal credit card.

As an entrepreneur, you must know that not paying your employees is not acceptable as well as a violation of the Fair Labor Standards Act.  It is the responsibility of the business owner to be aware of their financial situation and not ever get into the position of treating the most important people, your employees, unfairly.



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