Small Business: What To Do If You Can’t Pay Your Employees
COVID-19 lockdowns are having a devastating impact on small businesses worldwide.
Operations have halted and little or no revenue means that many business owners are unable to pay their employees.
Fortunately, there are ways to protect workers and keep businesses afloat.
Here are five options to help you navigate the most challenging economic conditions in living memory.
1. Apply for small business relief
Small business owners in South Africa have access to a raft of business relief measures in the form of tax breaks, income grants, debt-financing schemes and low-interest loans.
Besides interventions by the Department of Small Business Development, there are a number of targeted lifeboats for industry-specific small medium and micro enterprises (SMMEs).
Additionally, the R2.5 billion Solidarity Fund, Anton Rupert’s Sakuma Relief Programme and the Oppenheimer’s South African Future Trust are among several privately funded initiatives conceived to ease the burden on entrepreneurs, start-ups and small to medium enterprises.
2. Get paid now, trade later
Innovative voucher-based platforms, where customers pay up front for goods and services that they get to use post-lockdown, have been developed to help small businesses maintain a positive cash flow.
Options vary from the restaurant-focused Voucher Plan and Rally for Your Bar and Restaurant to FundItForward and Say Siyabonga.
Merchants can register on the platforms and sell vouchers or gift cards that are redeemable after the lockdown is lifted.
3. Ramp up liquidity
There are several methods of accessing the funds required to cover the payroll.
You can liquidate the existing inventory at a discounted rate to move it quickly and shore up the balance in the business account.
Alternatively, you can actively – and aggressively – collect cash receivables on outstanding invoices.
Selling non-essential assets can instantly improve cash flow or you can use an existing business asset (a company vehicle or commercial real estate) to secure a short-term loan.
Pawn My Car specialises in providing instant cash loans backed by fully paid-up vehicles.
4. Negotiate salary cuts
When you’re unable to raise the capital to cover existing wages, negotiating salary cuts or delayed wages is the only practical solution.
The trick is to start negotiations as soon as possible and to be entirely honest about the difficulties the business is facing.
When employees know everyone is in the same boat and salary cuts are the only option – other than laying off staff or filing for bankruptcy – they’re likely to make surprising sacrifices, as this CEO learned.
Handling pay cuts with empathy and transparency can even improve team morale.
5. Temporary shut-down
Closing the business temporarily, until economic conditions are more favourable, may be the most cost-effective solution.
As business suspensions have myriad financial implications, it’s recommended you consult a lawyer to help you manage the transition.
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