You might not make payroll on Friday

This happens to profitable businesses. It happens to contractors with a full schedule and a good year behind them. Profit and cash are different things, and a growing contractor can be short in a specific week while doing perfectly well over a year.

That does not make it less frightening on the Wednesday. Here is the order that gets you through it.

Know the exact number today

Not roughly. By Wednesday morning you want, on one page:

• Gross payroll due, plus the employer taxes on top of it
• Cash in the bank right now, cleared, not pending
• What is certain to land before the run — not what you hope, what is confirmed
• The gap, as one number

Most owners in this position have been carrying an approximate version of this in their head for a fortnight, and the approximate version is usually worse than the real one. Get the real one first, because everything below depends on how big the gap actually is.

The one thing never to do

Do not fund payroll by not remitting the withheld taxes.

It is the most available lever in the room and it is a trap. The withheld income tax and the employee share of FICA were never company money — they are held on the government's behalf, and failing to pass them on can be assessed personally against you, not the business. It survives the company closing. It survives bankruptcy in many circumstances.

A week of breathing room bought this way routinely becomes a five-figure personal liability with penalties attached. If you take nothing else from this page, take that.

Things to try, roughly in this order

1. Collect. Go through the receivables ageing and call every customer with an overdue balance today. Not email — call. Ask for a specific amount by a specific date. Contractors are consistently surprised how much of "they will pay when they pay" turns out to be an invoice sitting on someone's desk awaiting approval, or a lost invoice, or one blocked by a missing lien waiver. Offer to walk it round personally.

2. Invoice everything unbilled. Completed work not yet invoiced is extremely common in a busy stretch, and it is the fastest money in the building. Check completed jobs, change orders that were done and never billed, and anything sitting at ninety percent.

3. Draw on the facility you already have. A line of credit exists for exactly this. If you have one, this is what it is for. If you do not, note it for later — the time to arrange one is when you do not need it.

4. Talk to suppliers before you talk to the bank. A supplier you have paid for six years will very often extend terms by thirty days if you call before the invoice is late and tell them straight. Calling after is a different and much worse conversation.

5. Stop your own draw. Before anyone else's pay, before asking staff for anything. It is the right order, and it also matters for what comes next — you cannot ask a crew to be patient if you have not been first.

6. Talk to the bank. Sooner rather than later. A bank told about a squeeze in advance has options. A bank that discovers it through a bounced payment has fewer, and is less inclined to use them.

If the gap is still there

Talk to your CPA and, if the numbers are large, an attorney. There are specific things to understand about wage payment obligations before you consider paying anyone late — unpaid wages are not an ordinary debt, they carry their own state law requirements and penalties, and the rules differ substantially by state. Do not improvise this.

If you have to have the conversation with your crew, have it directly, in person, with a specific date attached. Skilled tradespeople have seen businesses wobble before. What loses them is finding out on payday from a failed deposit.

Once the immediate week is handled

The useful question is not what went wrong on Friday. It is what was true two months ago that made Friday possible. In our experience it is almost always one of four things:

Receivables that nobody was ageing. Money owed and not visible is money nobody chases. A proper ageing in front of an owner routinely surfaces amounts they had mentally written off.

Growth funded out of working capital. Every new job is materials and labour out before money in. Growing fast on a long collection cycle consumes cash precisely when the P&L looks best. This is the most common cause among the healthy businesses this happens to.

Seasonality nobody planned for. HVAC and roofing both have it. A predictable slow stretch is only a crisis if you did not reserve for it.

Jobs that were never profitable. If margin is wrong, no amount of collection fixes it — you are financing losses with cash flow, and it gets worse as you get busier. Costing one job properly will tell you whether this is your problem.

Every one of those is visible in advance in a set of books that gets closed monthly and read. None of them is visible from a bank balance.

Related

• Cash flow you can see coming
• When a customer will not pay
• Getting a line of credit as a contractor
• Seven signs a contracting business is in trouble

This is general information, not legal or financial advice. Wage payment obligations, and the consequences of paying wages late, are governed by federal and state law and vary considerably. Take advice from an employment attorney and your CPA before making decisions about late or partial payroll.