NFIB

Tightening the Belt
03/ 05/ 2002


Payment priorities in a cash crunch
No company plans on having a cash crunch, but even rapidly growing small businesses can experience temporary growing pains. Numerous previous Workshop articles have focused on cost cutting, monitoring cash flows, speeding up the inflow of cash, slowing down outflow, and reining in a budget - but every business is subject to unforeseen circumstances that may require severe belt-tightening. In such times, immediate and severe payment restrictions may be required. Today's Workshop, by Jeffrey Moses, can help you prioritize payments when there isn't enough money to go around.

1. Payroll should always be your number one priority because even one missed paycheck will send your employees scrambling, looking for new jobs. Even your most reliable long-term staff will be wondering - and no one will forget the missed or late paychecks even when the company is on an even footing again. Included in this category also should be payments the company makes for employee insurance and retirement plan funding.

2. Tax bills of all kinds should be met whenever possible. In most instances, however, late payment schedules can be arranged, although stiff fines maybe exacted. If you know that you're going to be late paying taxes, it's imperative that you notify authorities as far in advance as possible. Often, payment schedules can be set up - but if they're not met, tax officials may add penalties and interest, as well as place liens on the business' property or garnish bank accounts.

3. Your utility bills (water, electricity, gas, telephone) almost always need to be paid on time, at the risk of discontinuation of service. Again, it's sometimes possible to set up payment schedules if the companies are contacted in advance, but few utilities will continue service to businesses without timely payment.

4. Insurance plans usually have a one-month grace period for payment of premiums. Contact your insurance agents to keep them apprised of your situation, and to make sure that you don't miss the deadlines for keeping insurance in force.

5. Debt payments are often more negotiable than payroll, taxes, utility bills or insurance payments. Banks and other lenders have a vested interest in keeping you in business, so they may be open-minded about arranging mutually acceptable payment schedules. Contact all lenders as far in advance as possible, and be ready to outline definite schedules for payback. Note: missing payments on some types of loans, such as real estate purchase contracts, may lead to immediate forfeiture of purchased property.

6. Suppliers frequently will work with you on re-scheduling payments. Be sure that you arrange for continued delivery of important materials. It's often possible to prioritize payments to suppliers, putting off those that provide materials not essential to your day-to-day operations. Even these suppliers, however, should be promptly notified of your situation and worked with closely to arrange suitable re-payment schedules.

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