Paying employees is one of the most important fiduciary responsibilities of any business owner.
However, managing payroll can be challenging, especially for small businesses. One of the biggest challenges is ensuring that you have enough funds to pay your employees on time.
Here you will read about five proven, best practices that will help you ensure that you are able to fund your employees' payroll.
Track Your Cash Flow
As you’ll learn in Fiduciary Responsibilities for Small Business Owners you have specific responsibilities to your employees.
One of the most important things you can do to ensure that you are able to fund your employees' payroll is to track your cash flow. You need to know how much money is coming in and going out of your business at any given time.
This discipline will help you identify potential cash flow problems before they become serious. You will need to use accounting software or hire an accountant to help you keep track of your cash flow.
Create a Budget
Creating a budget is another essential best practice for ensuring that you are able to fund your employees' payroll. A budget helps you plan your spending and make sure that you have enough money to cover your expenses, including payroll. When creating a budget, be sure to include all of your expenses, such as rent, utilities, and taxes, as well as your expected revenue.
Another tool is to use a Pro-Forma Spreadsheet to itemize each expense item for each month.
Once, you have it built, you can make changes and see the impact on your cash flow and profitability instantly.
Manage Your Accounts Receivable
Managing your accounts receivable is another important best practice for ensuring that you are able to fund your employees' payroll. This involves keeping track of the money that your customers owe you and following up with them to ensure that they pay on time.
Late payments can put a strain on your cash flow and make it difficult for you to pay your employees on time.
Keep a Cash Reserve
Keeping a cash reserve is another best practice for ensuring that you are able to fund your employees' payroll. A cash reserve is a pool of money that you set aside for emergencies or unexpected expenses. This can help you cover your payroll in case of a cash flow problem or other financial emergency.
As a general rule, you should aim to have at least three to six months' worth of expenses in your cash reserve.
Consider Alternative Funding Sources
Finally, if you are struggling to fund your employees' payroll, consider alternative funding sources. This could include a business line of credit, a small business loan, invoice factoring or even crowdfunding.
However, be sure to carefully consider the terms, costs and interest rates before taking on any additional debt.
Grow Your Business & Keep Employees Happy
Paying your employees on time is critical for the success of your business. By following these five best practices, you can ensure that you are able to fund your employees' payroll and avoid cash flow problems.
Remember to track your cash flow, create a budget, manage your accounts receivable, keep a cash reserve, and consider alternative funding sources if necessary.
With these practices in place, you can focus on growing your business and keeping your employees happy.
Tips:
- Keep a close eye on your cash flow and create a budget to ensure that you have enough funds to pay your employees on time.
- Consider alternative funding sources, such as a business line of credit or invoice factoring, if you are struggling to fund your employees' payroll.
- Manage your accounts receivable to ensure that your customers pay on time and avoid putting a strain on your cash flow.
- Keep a cash reserve to cover unexpected expenses or cash flow problems.
- Remember that paying your employees on time is critical for the success of your business.
Traps:
- Failing to track your cash flow can result in unexpected cash flow problems and difficulties with paying your employees on time.
- Not managing your accounts receivable can lead to late payments and cash flow problems.
- Relying too heavily on alternative funding sources, such as debt and crowdfunding, can lead to a cycle of debt and financial instability.
- Failing to create a budget that includes all of your expenses can result in a lack of funds to pay your employees on time.
- Not keeping a sufficient cash reserve can leave you vulnerable to unexpected expenses and cash flow problems.