Over the past year, much of the talk around veterinary practices focused on how well they did — record growth and more clients than they could handle. Some clinics, though, suffered greatly. They closed temporarily or cut hours because employees were out with the coronavirus. A few were heavily in debt. One problem that struggling practices often share is the challenge of making payroll. So, what do you do if you’re suddenly unable to compensate your loyal, dedicated employees? The first step is to find the money quickly and keep your business going. The second is to identify the cause of the shortfall and the changes needed to keep the cash flow strong. The last is to start a cash-flow monitoring system. Keeping employees informed and prepared is critical. Notify them as soon as you know their paychecks will be reduced or delayed. Tell your team what you are doing to obtain the cash and solve the underlying problems. If layoffs are imminent, warn everyone. Let’s explore the three steps in detail.
Help! We Can’t Make Payroll!
If employee paychecks are at risk, do whatever you can to find the money immediately. Then, solve the central issues.
1. Get Your Employees PaidYou have legal, ethical and practical reasons to find the cash to pay your employees on time. Legally, the Fair Labor Standards Act and state and local laws require that workers be paid promptly. Failure to do so can subject a business to back wages, back taxes, penalties, attorney fees and court costs. From a practical standpoint, a clinic trying to recover from financial trouble needs employees. Team members won’t stick around long if they aren’t getting paid and if finding another job is easy. Veterinary medicine is a small community, so word spreads fast about practices that can’t pay their bills. As far as getting the cash to cover your payroll, consider these options:
- Reduce owner compensation and use the money to pay employees.
- Reduce or delay bill payments. Making the minimum credit card payment isn’t ideal but can help in the short term.
- Increase collection efforts if your accounts receivables are substantial.
- Borrow from a financial institution.
- Arrange a loan from the practice owner.
- Obtain a line of credit.
- Ask friends or family members for a loan. Be prepared to explain why the practice is in a precarious position, how you will repay the money and how you will prevent a recurrence.
- Obtain a credit card cash advance.
2. Fix the ProblemOnce the immediate crisis is over, focus on understanding why the shortfall occurred. Reduced or negative cash flow happens either because the inflow (revenue) declined or the outflow (expenses, debt payments and owner distributions) increased. Sometimes, it’s a combination. If revenue declined, ask why. For instance:
- Are you seeing fewer clients? Why? Did demand fall, or were hours slashed and appointments reduced?
- Are clients spending less at each visit? Again, why? Is your practice so busy that you don’t adequately communicate the need for health care? Has client service slipped?
- Postponing major expenditures such as a remodeling and large equipment purchase.
- Talking to your landlord about deferring rent payments.
- Negotiating deferred loan payments.
- Being mindful of when you must repay deferred money. For example, will the payments rise after three months?