How should I deal a payroll emergency?

November 2009

""Help! My largest customer just told me they need more time to pay me, so I won't be able to make next week's payroll. What do I do now?"

Mike: First, put a freeze on all outgoing payments--no exceptions. Then review all possible cash sources, including your investors, bankers, factors, customers, creditors, and even your employees. You may be pleasantly surprised to find an "angel" who can float a bridge loan that gets you through the crisis.

If you can't come up with a quick infusion of cash, immediately let your directors and your CFO know about the problem (if they aren't already aware of the situation). Legally, you and they probably have some personal liability for net employee payroll plus federal and state taxes. Chances are, your board members will decide that it's better to lend money to the company than to get stuck with tax and payroll liabilities. But they won't be happy about the situation--or with you.

Since this kind of problem is likely to happen again, you need to reduce your company's overall financial vulnerability. That probably means some layoffs and serious cost-cutting. If a single delayed payment puts you in a financial tailspin, your company is severely undercapitalized.