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Meeting Payroll Challenges as a Small Business Owner

Sep 6, 2017

A small business is only as strong as its employees. 35 percent of small business owners say their biggest internal challenge is finding skilled workers. But a small business owner’s work is never done and once these skilled workers are found they must be paid accordingly. Whether a business is growing, in a natural down season, or just low on cash flow for any reason, it is common for business owners to run into the issue of not being able to make payroll.

Business Growth

As a business continues to grow, so does its payroll. With growth comes the need for more employees, an increased skill level of employees, and the funds to pay these employees for their contributions. For some businesses, the rate of growth exceeds revenue, creating a situation in which they cannot pay their employees accordingly.

Seasonal Decline

Most business owners experience a down season, a seasonal decline in sales and revenue that leaves them vulnerable to cash flow challenges. Summer can be a particularly slow season for small business owners as the holiday season ends and sales momentum slows down. Too often no amount of planning and preparation can prepare a business for the challenges a down season can create, including the inability to meet payroll needs and other necessary expenses.

Gap in Receivables

Cash flow projection is never perfect. Sometimes the expected cash flow of a small business does not reflect reality, especially when there are gaps in receivables. As the number of days with outstanding sales increases, so does the business’ challenge of meeting payroll. Account receivables are a necessary evil for many small businesses, but do not have to be as detrimental as they may seem.

Each of these situations can impact a business owner’s ability to meet payroll despite running and operating a successful business. An unpredictable landscape is a part of owning a business, so if cash flow shortage is a problem many businesses face, there must be solutions available as well. What sets apart a successful business from an unsuccessful business is the ability to find the solution that best meets the needs of the business. Fortunately, there are several routes small business owners can take to receive the funds they need to successfully meet their payroll obligations. Here are just a few options to consider if you find yourself with a lack of working capital:

Personal Funds

Often the most accessible way to increase cash flow fast is to tap into one’s personal funds. However, dipping into personal savings and accounts to pay employees and keep business afloat is also often the least preferable option. This source of financing reaches its limit just as fast as the cash can be accessed, often leaving business owners in the same situation they started in.

Bank Loan

Other than personal savings, a loan from their bank is often the first option small business owners consider. Unfortunately, most business owners quickly learn that while their bank can perform a variety of services, getting businesses the cash they need quickly is not one of them. Banks are risk adverse and despite a healthy balance sheet and positive cash flow, very often a bank will deem a cash loan too risky of an endeavor. Factoring in a lengthy approval process, ongoing fees, a laundry list of requirements as well as collateral guarantees, while bank loans provide relief for some, they represent a poor option for many business owners looking to get cash fast.

Cash Advance

Business owners with steady credit income may prefer to take out a cash advance in order to meet payroll. Cash advances allow for fast and easy cash in comparison to a traditional bank loan, but the unpredictability of credit income and pay off that come with a cash advance may not suitable for many small businesses. With considerably high rates and an open-ended loan period, cash advances may not be worth the risk.

Account Receivables

The inability for a business owner to make payroll can often be attributed to outstanding receivables. When hit with unexpected financial challenges, these outstanding receivables can also serve as a solution to making cash fast. Discounting any outstanding receivables can be a short-term solution to covering payroll as soon as possible. However, this option should be a last resort to many small business owners. While it means gaining cash quickly, in the long run it leaves owners with less funds than originally expected and sets a precedent that most business owners would prefer to avoid!

Alternative Lending

A simple, fast, and low risk solution to payroll challenges is alternative lending. Small business loans and advances through alternative lenders provide small business owners the opportunity to obtain funds without the stress and lengthy process that banks require, and without the unpredictability of utilizing account receivables or taking out a cash advance. Through alternative lenders, small business owners can receive approvals within hours and have the funds to meet payroll the next day, as well as have a source for renewable funds for the future.

As a business owner, fast cash solutions are an integral part of relieving issues that threaten payroll. With sufficient knowledge and understanding of funding options, any financial challenges a small business may encounter can be solved with the greatest of ease.

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