As small business owner you have many responsibilities and payroll administration is often left until the last moment simply because you don’t have time to manage it properly. However, taking a proactive approach to management of the salary accounts will help you avoid problems and ensure consistency in administration.
Indeed, the payroll can be predicted for the coming months unless you make use of casual labourers, commission workers or part-time employees on an irregular basis. Forecasting the payroll requirements is, however, essential. You can do this as part of your income and expenses forecasting task. By taking the time to do the forecasting with the help of accounting software you can avoid cash-flow situations down the line.
Not being able to meet the salary responsibilities at the end of the month can lead to labour disputes, visits from the Department of Labour and also closure of business. You shouldn’t look at payroll administration as a separate function. Treat it as part of tax and accounting functions to ensure that you comply with all relevant legislation.
If you are unable to meet payroll demands, it means that your income is not enough or funds are not properly managed. If the income is not enough, you may need to spend more on marketing to increase revenue by getting more clients or selling more products to existing clients. Assess the business environment – did a competitor move in on your market and if so, what steps should be taken to retain and expand your market?
Perhaps you have not made a proper distinction between your personal expenses and that of the business. Always have a separate account for your personal income and expenses. And keep in mind that many businesses fail after the first year because the owners buy fancy cars or equipment from the profits generated. Keep capital layouts low until your business is financially strong enough to handle large capital outflows. You may need to look at company restructuring.
Do you have too many employees?
One mistake to avoid is employing a full time accountant or payroll administrator if you have only a few employees. Rather outsource the payroll administration, tax and accounting functions to expert companies able to provide you with the manpower and expertise to handle such functions properly and cost-effectively.
If you own a retail outlet or restaurant, look at your inventory management. Do you carry unnecessary stock or inventory for items on the menu which don’t sell? Dead stock means loss of income, space wastage and the inability to attract new customers. If you have dead stock have a sale and research what will sell. Perhaps you need to create a new and more streamlined menu as restaurant owner to minimise the need to keep produce that go bad quickly.
Then also consider the possibility of fraud and theft in your store or restaurant. Install security cameras and implement a system that makes it difficult for employees to steal cash or products. Sometimes getting help from professional accountants and payroll managers can help you identify the problem areas and ways to address such in order to meet payroll obligations.
Don’t let the inability to pay salaries lead to the demise of your business. If the forecasts show problems ahead in the coming months, take steps now to address the problems!
Such steps may include measures such as cost cutting, restructuring, reduction in the hours that your staff must work and reducing the stock that your business must carry. It can also entail outsourcing functions such as accounting, bookkeeping, payroll management and tax calculations to an expert company in order to save on electricity, manpower costs, computer software licenses and maintenance, and office space.
Cutting on the employee profile should be the very last option, as your employees depend on your business for their livelihood. However, addressing waste in a restaurant, for instance, can help to minimise the need to retrench workers. Implement a POS system which allows for proper inventory control, commission payments and cost calculations. At the same time, revisit your staff hours. Do they work until late night when the restaurant effectively stops generating income around ten at night? Can you close doors an hour earlier and safe on electricity, gas, and hourly tariffs?
Take the first step in regaining control over costs by outsourcing functions, such as payroll administration, accounting and taxes.