Payroll is one of your most significant business expenses and one of the first things you struggle to pay during cash flow dips. You may need help paying employee payroll for several reasons, like unpaid client invoices or spikes in costs for the materials you need to run your company. Businesses can also struggle with payroll when they are low on staff and must cut operating hours.

The best solution for making payroll is to keep a careful record of your business expenses to avoid situations where you can’t pay. On pay periods when this strategy doesn’t work, you can consider more extensive measures.

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How to Stay on Top of Payroll

Maintaining consistent employee pay begins with managing your finances. This strategy allows you to plan for weeks or months when your funds might be tighter than usual. When you know in advance, you have more time to develop a plan to get the money you need. There are several strategies you can use to manage your finances.

Calculate Important Business Metrics

Business metrics are numbers you can use to track and monitor business processes. By comparing metrics to previous measurements, you can determine where your business stands and whether you are on track to meet particular goals. For employee payroll, the most critical metrics relate to your finances. Here are a few you should monitor:

  • Day sales outstanding (DSO): This number represents the average days your business must wait to receive payment after making a sale. A high DSO means you may need to change your money collection methods.
  • Accounts receivable turnover: Like the previous metric, this measurement relates to your receivables. It measures how often you convert receivables into cash. To determine your ratio, divide your net credit sales by your average accounts receivable.
  • Net income and profit: Net income measures your total money earned, and profit is your earnings after paying expenses.

How To Use the Accounts Receivables (AR) Turnover Ratio Calculator

  1. Fill in the sales revenue.
  2. Fill in the accounts receivable amount.
  3. Press Calculate.

Result:
Enter values above and click Calculate.

Monitor Your Bank Account

Another way to ensure you have the necessary funds to cover payroll is to monitor your bank account. Each month, determine how much you make and how much you spend. Also, take note of upcoming bills and expenses so you know what you need to pay and whether you will have enough money to cover them.

An accountant can help with this process if you need more time to focus on other business operations. They can alert you about upcoming expenses or low-income months where payroll might be more difficult.

Create a Cash Flow Forecast

While tracking past metrics and monitoring your current financial situation provide information you can use today, what about one month or a year from now? A cash flow forecast predicts your future incoming and outgoing funds, giving you advanced notice of situations where you may need help meeting payroll. Here’s how to set up a cash flow forecast:

  1. Decide on the period you want to forecast, usually monthly, and look at data from the last year to predict trends.
  2. Estimate your cash inflow from sources like repaid loans, sales of assets or government grants.
  3. Estimate expenses like buying assets or paying off a loan.
  4. Compile your estimates and deduct or add them to your current bank balance to determine what your funds might be at the beginning of the next period.

Creating this forecast gives you an idea of how monthly cash flows might change and provides advance notice for low funds.