The Best Kept Secret – How Your State Will Fund Your Startup’s Cash Flow Gap
Smartco Corp is a 2-year old startup that recently started selling product to a few large customers. They have 30 employees and a $250K monthly payroll.
Recently, Smartco ran into a serious cash flow problem due to a late-paying customer.
Most startups will experience cash flow problems. They often rear their ugly head when the business just becomes cash flow positive and is no longer living off investor life support money. For many companies, especially if the investors and owners are tapped out after a long development stage, it can be the final straw.
Smartco was exactly at that juncture. Many years and millions of dollars to develop the product had finally come to an end. They had real customers and a working product. Cash flow was tight, but improving when a major customer went south on a large receivable that jeopardized Smartco’s future existence.
Like many tech startups, most of Smartco’s expenses were payroll. They did not want to lay off employees, though, but needed a temporary 20% reduction in payroll cost to survive.
Luckily, Smartco was located in a state (such as MA and about 25 other states) that have a Work Share program. These programs let a business reduce the hours of certain or all workers and allow the employee to collect Unemployment Compensation from the state for the hours cut.
So, Smartco temporarily reduced everyone’s pay to 4 days. They remained open 5 days, as they are able to dictate what day each employee can take off. Some of the hourly and lower paid employees actually received most or their entire regular payroll, as overtime plays into the benefit calculation. All of Smartco’s employees, though, were happy to collect for the other day and spend it skiing or at the beach.
The details of these Work Share programs vary by state, but can be incredibly valuable in retaining employees while going through cash flow problems. Recently, Congress passed a bill that federally funded these programs, so most states currently without a Work Share program will probably implement one soon.
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