You can’t call yourself an entrepreneur if you have the habit of not paying your workers on time, erratically, or not at all. Real business leaders always pay their employees first. Let's call it the first law of entrepreneurship.
I began my business career as a construction contractor more than 30 years ago. My business entailed getting construction contracts, some which took several years to complete. I would sometimes have thousands of people working on my projects. 90% of my people were paid on a weekly basis. It was almost a ritual, whereby we’d go to the bank on Friday morning to collect the "payroll."
Each worker was paid in cash, and we would sit and pack the money into little brown envelopes, after deducting taxes. We'd then travel to the sites and pay them their money.
I never ever missed a payroll… except once, and it probably saved my life. I was abducted from my office at gun point on one of my payroll days. The person who raised the alarm that I was missing said this: "We know something has happened to him because he didn’t come to supervise the release of this week's payroll."
# If you owe your workers money, you’re not yet an entrepreneur.
The second law of successful entrepreneurship is this: If, for any reason, you’re going to miss your payroll, you must always make sure the lowest paid workers are the first to get paid -- not the managers and others you deem most skilled.
# Always pay the lowest paid workers first. They’re the most vulnerable.
If we didn’t have enough money to meet our payroll, I spoke to my senior people and asked them to make the sacrifice. It also meant I myself would go home with nothing. But workers like cleaners, laborers (we had a lot of these in the construction business), drivers etc., were always paid first. This always included the youngest people in our business.
If you want to go far as an entrepreneur, treat workers’ salaries and wages as sacrosanct. If you see a big man who has lots of cars, a big house, goes on holiday overseas but is in arrears on salaries and wages, he’s really not an entrepreneur.
Don't be fooled, he’s not a big man at all! True entrepreneurs pay their people on time, all the time. And they take care of the most vulnerable members of their organizations first. I’d rather someone called me a successful entrepreneur on the basis that I never missed my payroll, than on the basis that I made a billion dollars.
Now to help avoid such a crisis, there’s one thing you must learn to do straight away in your business, and that’s manage your cash flow… your “accounts receivable” (sales) and your “accounts payable” (expenses). If you don’t keep track of your cash flow, I guarantee at the end of some months, you’ll have a shortfall.
If you haven’t already done so, put together a cash flow budget, with a few different scenarios (best case, worst case, different assumptions). You can’t predict everything, of course, and surprises happen, but do your best with what you know now. Cash in? Cash out? Timing? Enough cash to meet payroll? (This is a complicated subject but we’re just talking about payroll here.)
A few years ago there was an article in Forbes’ magazine called “Success will come and go, but integrity is forever.” Never forget that. Most all businesses have legal and contractual obligations which you must respect. But there are also moral obligations to consider... Do you know the difference?
Afterthought. Relatives can be some of the most loyal employees in a small business. It’s also easy to forget that they are employees who need to have a CONTRACT, and must be paid a salary, just like anyone else. Make sure you pay salaries even to that "small cousin from the village who cleans the place." That little cousin deserves respect, and she has some dreams too, which need money!