Proritizing Bills When Money Is Short
When you can't pay all of your creditors, decide which
ones to pay first. While every situation will be different,
this article suggests a base strategy for prioritizing
payment importance.
Payroll and sales taxes
Unlike income taxes, you collect your employees' shares
of payroll taxes and sales taxes as an agent for the appropriate
taxing authority. You are merely holding this money in
trust until you turn it over to the government. If you
can't pay these taxes, it is not the same as not paying
an ordinary bill. It is the same as having used the government's
money for your own purposes, and the government will enforce
severe penalties for failure to make payment. Even if
your corporation goes bankrupt, the IRS may still seek
payment from former officers or shareholders.
Income and other taxes
While it is usually possible to do some negotiating
with the tax authorities regarding income taxes, particularly
in arranging installment or delayed payments, the penalties
and interest can be stiff. Also, once the IRS or other
tax authority is determined to collect money from you,
it will be quicker than any other creditor to place liens
against your bank account or freeze your assets.
Utilities
If you are approaching a cutoff date for utility payments,
remember that few utility companies will allow business
customers to continue service use without paying bills
in full. If you need electricity, water, heat or phones,
don't fall too far behind in your payments.
Wages
If you miss even one payroll, your people will begin
looking elsewhere for employment. Technically, if a company
goes bankrupt, you will not be responsible for its debts,
including payroll debt. But most companies in this situation
find some way to pay their employees in full for work
already completed. So should you.
Key suppliers
Pay your key suppliers enough money to continue delivery
of those goods, materials, and/or services that are essential
to the operation of your business.
Debtors
If you think your business may go under and you have
personally borrowed money or personally guaranteed business
loans to finance your company, consider paying these types
of debtors before paying your key suppliers. No matter
what happens to your company, including bankruptcy, funds
borrowed from friends or relatives, funds used from home
equity loans, any personal loans garnered for business
use, and/or any business loans with personal guarantees
will still be due and payable in full by you.
By Source Streetwise Small Business Start-Up
