As the coronavirus continues to spread, small businesses everywhere are feeling the effects. For many, the virus threatens more than their health. Health Canada has advised employees and consumers to practice social distancing and avoid contact with other people.
And business owners have lost profits as a result of the resulting slump in foot traffic. Some say they’ve even had to lay off employees due to the economic effects of the virus. It stands to reason that, due to a coronavirus-related cash flow problem, companies of all sizes may lapse on payroll.
The government of Canada has announced a 75% wage subsidy for small businesses. Read more about the COVID-19 credits provided by the federal government.
There are other ways to help support your staff during this uncertain time. Read on for six options for paying your employees when you think you can’t make payroll—and three options should you miss payroll.
How to increase cash flow when you think you can’t make payroll
1. Ask your vendors for longer payment terms
Humans are the heart of any business. Explain your situation to your vendors as soon as possible. Be transparent and realistic about payment solutions and pay dates.
2. Offer a discount to new customers who pre-pay for services
Explain to your customers that pre-paying for services can help ensure the quality of the service in this challenging time. Your customers will appreciate both the positive discussion and financial benefit.
3. Speak to your accountant or bookkeeper
Your accountant or bookkeeper knows your business’s financials inside and out. Speak to them as soon as possible and ask how you can make up losses or reallocate budgets to get workers paid on time.
4. Consider financing your invoices
Invoice financing, also known as invoice factoring, is one resource in a business owner’s credit portfolio. Essentially, you can use your invoices as collateral for cash. Collect invoices immediately, rather than waiting 30, 60, or 90 days for your customers to pay you. But be prepared to pay a high-interest rate and ask your customers to sign a contract, agreeing to this solution.
5. Enable an overdraw on your bank account
Your bank may allow you to overdraw on your account. But you may have to contact your bank to opt in, as you may be subject to heavy overdraft fees. This option may not be possible for retail banks that serve smaller customers.
6. Talk to your investors
If you work with a venture fund, a board of advisors, or a network of angel investors, explain your situation. These individuals care about the success of your business, and good partners will have your back. They may be able to provide a bridge loan or financing to help you through your crunch. Smart investors know that short-term challenges have the potential to come up.
What to do when there’s no way to avoid missing payroll
1. Talk to your payroll provider
If you work with an outsourced payroll provider, for instance, communicate that your business is experiencing challenges due to lack of funds. Then speak to your health insurance carriers to guarantee that your employees will keep their coverage. Work with your network of partners to create a move-forward plan.
2. Apply for a short-term business loan or grant funding
Keep in mind, however, that fundraising is a long-term process. And you may need to step back from your operations to recover from a decline. You might be qualified for assistance from the federal government and apply for a COVID-19 Credit.
3. Make up for the lapse in payroll at a later date
If this is your last resort, speak to your workers as soon as possible. Be transparent about your losses, and understand that you may lose workers as a result. As soon as you can, make up lost pay and offer bonuses and other tangible forms of acknowledgment to thank your employees for their support.
4. Encourage your employees to apply for unemployment and other government programs
It’s a tough thing to admit needs to happen, but if it’s the only way your employees can get paid, it’s important you let them know upfront unemployment is an option they can take.
Act fast and avoid stress—you can do this
Business owners experience cash flow issues and late payroll, even when there’s no global pandemic. Whatever you do, don’t attempt to handle this tough situation alone. Some experts specialize in strategic financial services. Seek out these professionals to help you understand fines, penalties, and other repercussions. Depending on the health of your business, these numbers may be insignificant to your long-term financial trajectory. Act as soon as you realize the extent of your problem. With the right attitude, strategy, and support system, you’ll get through it.