You’ve had to explain to your employees why there’s no money for their paychecks

You might be an entrepreneur if…you’ve had to explain to your employees why there’s no money for their paychecks.

You might be reading this thinking “This guy doesn’t sound like an entrepreneur, he sounds like a poor businessman.” That may very well be, but if being ill-prepated to make payroll puts me into a certain group of businessmen at least I’m in good company. Remember the infamous story about FedEx founder Fred Smith who was in dire financial straits so he flew to Las Vegas with the last of his company funds and then won enough hands of blackjack to make payroll? I don’t condone gambling, but Las Vegas should be airing commercials about that guy day and night. Who knows how many fledgling businesses would go under due to their owners gambling away the last of their cash on hand.

But trust me, if you’re an entrepreneur and have never had to explain to employees why you’re going to be late on payroll then you’ve really missed out.

But back on topic. Yes, I have had to explain to employees why I couldn’t pay them on payday. Not just once or twice–many times. The reasons are varied. Sometimes it’s because a client fails to pay us on time. Sometimes a client goes out of business without paying their bill. Sometimes we simply didn’t land enough business during the previous month. Sometimes the money is on the way in the mail, but we just haven’t received it yet. Just a month or two ago we went for three weeks of the month with no money coming in, and then received $42K in two days. I would have much rather had $21K of that two weeks earlier. That’s the type of problem people are describing when they groan about cash flow. Sometimes it makes a big difference whether you receive the money on Monday or Friday of the same week, especially when payday is on Tuesday.

Explaining to employees why I can’t pay them is tough. I often feel that they’re looking at me saying “C’mon, we know you’ve got some money tucked away somewhere, you could pay us if you really wanted to.” But it just ain’t so, or else they’d be getting paid on time. After working late, calling everyone who owes us money, trying to land new business, borrowing against cars, taking out savings, maxing out credit cards, calling everyone who owes us money again, trying to get projects done so we can bill for them, etc. there’s not much more you can do.

When I’ve talked with others about this issue, which is mostly a cash flow issue, they often say “Why don’t you save up some money so that you can have a reserve to get you through lean times?” or “Why don’t you get a line of credit?” The answer is that I would love to, but have so far been mostly unable to. I actually just got a line of credit. Guess how much the bank approved me for. $10,000. Hardly enough to float a company that spends $50K+ per month for very long. That is despite being in business for 7 years, having good revenue growth, and having a personal credit score of almost 800. Go figure. Banks.

As for saving up money, whose paycheck am I going to save that money out of? You can only save money when you’re profitable, and if I have a profit one month I use it to pay off debt. In the long term, we’ll have our debts paid off and begin saving money, but it’s been a slow process so far.

A potential client reading all this might think “Man, it sounds like these guys are a step away from going out of business.” Yeah, we’ve been that way for seven years, and we’re still here. I remember about a year into the business we had a new bookkeeper come review our books and try to clean them up. After ten minutes looking through our files he came to us in a panic and said “You guys are going out of business!” We just smiled and said “You should have seen things six months ago.”

By the way, it’s payday today…