Friday, November 19, 2010

Using a Merchant Cash Advance to Help with Payroll

As we have highlighted many times on this blog, a Merchant Cash Advance provides working capital that business owners can use for any business purpose. One way that some of our customers have used this business capital is to help manage payroll “disruptions.”

Before going any further, it is important to point out that a Merchant Cash Advance is definitely not intended as a means to handle routine payroll needs. Regular payroll expenses including prompt and timely payment of all payroll-related taxes, should be anticipated and paid as a part of normal cash flow planning and management. Merchant Cash Advance should be considered for payroll expenses only in a few special circumstances.

Here are a few examples of special situations where businesses in the past were able to successfully leverage a Merchant Cash Advance to help handle special payroll circumstances:
  • Bring on the seasonal help: The holiday season or the “high season” at resorts are the time of year many retailers, restaurants and other small businesses do the large portion of their yearly sales. Heavy, seasonal traffic flow through the business requires temporary sales help or additional part-time. However, having the extra money up-front to be able to hire and train these part-time staffers can be a challenge – particularly if other costs (i.e., inventory, advertising, etc.) are also rising in anticipation of the additional traffic. It is a win-win situation for many of our customers. 
  • To free-up working capital in slower times: Many businesses might be semi-seasonal, or have times where sales are definitely slower. Some of our past customers have used a Merchant Cash Advance to help manage payroll expenses during these slow times, so that the business can retain quality, trained employees during the slow times.
  • Correcting payroll errors or oversights: Sometimes, an error, a glitch or an oversight in payroll can result in a sizable sum being owed to employees or to a government taxing authority. In these rare cases, a Merchant Cash Advance can be used to handle the corrective measures without disrupting the normal cash flow of the business. The employees get paid right away, but the business is able to use a Merchant Cash Advance to absorb the cost more slowly, over time.
  • To stabilize operations if something else crops up: Sometimes an emergency or unplanned expense will require money. In these situations, a Merchant Cash Advance can make a great choice to help hold on to the best employees until the emergency is handled and normalcy is restored.
To reiterate: a Merchant Cash Advance should not be relied on as a means to REGULARLY handle costs associated with payroll. If your business’ ability to meet payroll obligations, including taxes, is a recurring problem, a Merchant Cash Advance is probably not the solution. However, as illustrated by the few scenarios above, there are a few instances where extenuating circumstances can make a Merchant Cash Advance a very good choice to help you to meet, or even exceed your goals.

THIS IS NOT INVESTMENT, TAX OR LEGAL ADVICE. Consult with a financial advisor, accountant or attorney before making important decisions in these areas.

What do you think? Are there specific times in your business when additional capital for payroll could create advantageous situations to earn more?