As Americans practice safe social distancing, local shutdowns have forced many small businesses to close their doors temporarily. And more are grappling with the fact that they might not make payroll as a result.
No business owner wants to let employees go. After all, 8 in 10 business owners say they care about their employees like family. And 1 in 3 has used their own money to cover payroll in the past. They’ve taken financial hits so that their employees didn’t have to, according to a 2019 survey of construction business owners.
Business owners are well aware of the financial implications a layoff could have on their employees, their business, and their reputation. But many don’t have a choice. Thankfully, business owners have alternatives.
1. Eliminate extravagant costs
That means no more team lunches, coffee runs, or nonessential office supplies. Explain to your team that money is tight, and you have to make some sacrifices. Get rid of unnecessary costs before you consider getting rid of your people.
2. Lower overhead costs and expand revenue streams
For many businesses, overhead costs are a major line item. Think hard about how you can reduce your overhead costs or eliminate them for the next few months. Scale back on your marketing budget. Double down on your online marketing efforts. Search for new ways to continue serving your customers.
If you’re in the restaurant industry, consider offering curbside pick-up or delivery services. If you sell products, ramp up your online presence and appeal to your loyal customers. If you sell services, now might be a good time to sell gift cards. That way, cash can still flow in, and you’ll have a long list of customers ready to spend at your business.
3. Consider cutting wages from the top
If you can afford to pay employees before you pay yourself, even at a reduced rate, do it. Ultimately, your financial sacrifice pays off in employee loyalty and your business’s reputation.
4. Apply for a grant or low-interest loan to cover payroll
Consider applying for a small grant or loan to mitigate your revenue losses and carry you through the next few months. Business owners can use these low-interest loans to pay off debts and bills and cover payroll. Meanwhile, the Small Business Administration (SBA) is offering coronavirus relief assistance. Some states have created relief funds and grant programs for small businesses. So check with your governor’s office for the latest news and updates on state-specific assistance.
Several banks, including Capital One, Citi, and Wells Fargo, have issued statements saying they’re willing to work with customers experiencing financial difficulties. They’re waiving service fees and donating to public relief efforts.
5. Furlough employees
During a furlough, employers take workers off the payroll, but workers still receive healthcare benefits. In many cases, employees are also eligible to apply for unemployment pay during a furlough.
6. Ask employees to take leaves of absence
Employee sabbaticals can be unpaid or paid at a much lower rate (i.e., 50% of a worker’s salary). Businesses still employ workers on leaves of absence and guarantee jobs to workers when they return.
7. Consider temporary layoffs
An employer may lay off workers temporarily. Typically, during this time, employees do not receive pay or benefits. But they are eligible to apply for unemployment pay. Employees may also qualify for standby. Standby waives the job search requirements while collecting unemployment pay during the approved standby period. Unemployment benefits vary by state, so check with your state’s labor department for more information.
8. Ask employees to leave voluntarily
Let your team know that you’re experiencing cash flow problems. If any of them have been looking for an opportunity to leave amicably, now is the time. This can help employees who don’t want to be laid off.
When layoff alternatives aren’t an option
There’s a chance that none of these alternatives will work for your employees or your business. If that’s the case, keep your employees’ best interests in mind. Laid-off employees can apply for unemployment pay and other financial benefits to carry them through. Here are a few resources that can help employees recover from a coronavirus-related layoff.
Learn how to apply for unemployment benefits and access other programs and services that can help if you lose your job.
Borrowing from your 401(k) can be a low-interest way to get your hands on some cash quickly.
Learn more about the risks and advantages of borrowing from your Roth IRA.
A financial hardship letter explains your financial situation to your lender, credit card issuer, or bank. They may work with you to create a sustainable payment plan.
If you apply for a personal loan online, you can have money in your account in as little as a day.
Regulations and guidance from the SBA and the U.S. Department of the Treasury on the PPP are evolving rapidly and the above information may be outdated. Please refer to the latest guidance from SBA and the U.S. Department of the Treasury to confirm current program rules and how they apply to your particular situation.
The funding described is made available to businesses located in the United States of America and are not available in other locations.
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