Why Is Payroll Important In Business?

Few business operations impact employee morale as does payroll management. If you've ever wondered just how important payroll is, just imagine the reverberating effects of employees missing their pay. Immediately, employees will question the overall health of the company, or will assume the worst is yet to come with respect to their employment. Of course most enterprises these days have come to rely upon the ease of direct deposit. Still, there are some companies that still depend upon manual payroll processes. Unfortunately, these manual processes are problematic, a source of constant frustration and one of the preeminent reasons payrolls are missed. When it comes to discussing payroll services for small business, few approaches are as impactful as outsourcing payroll. So, why is payroll management important in business? More importantly, why have so many companies come to rely upon outsourcing their payroll management to a payroll services company?

The Importance of Compensation Based Pay

In the world of business, there is simply nothing that compares to being properly compensated for a job well-done. There is far more involved with managing payroll than simply making sure employees receive their pay. Compensation based pay incentivizes employees to reach their full potential, motivates them to take on new tasks, and gives them the impetus to take charge of both their personal and professional development. When companies want to get the best from their employees, they often turn to a compensation structure that pays the employee, while rewarding the company. Payroll management is an essential ingredient in catapulting a company's top employees to the highest positions in the company.

Reducing Expenditures & Freeing Up Valuable Resources

When companies upgrade their payroll management, they immediately benefit from reducing expenditures and freeing up valuable resources. Whether it's outsourcing payroll, or using a payroll management software, deciding to upgrade payroll pays huge dividends. In essence, it means the company must do away with manual processes that do nothing more than clutter business operations and cost the business money. When companies upgrade how they manage their payroll, they are able to reduce expenditures across the board.

Lower Tax Bills!

Payroll services for small business must focus on reducing tax bills. One of the biggest costs of manual payroll processes, or poor payroll management for that matter, is the incidence of late or incorrect tax filings. In fact, almost 50% of companies in the United States face some form of fine for incorrect tax filings every single year. Of course, one of the main causes includes those aforementioned manual processes. However, late filings are also caused by companies being unfamiliar with the myriad of tax codes, government regulations and laws governing how employees are compensated and ultimately, how they should be paid. If ever there was one single factor that determined just how important payroll management is, it would have to be this one.

Payroll management happens to be that one business function companies don't realize how important it is until it's too late. Most companies understand that manual processes are not only tiresome, but also extremely expensive. To reduce expenditures, companies must be willing to invest in upgrading how they manage their payroll.

Business Financing - Alternatives To The Government Enterprise Finance Guarantee

Earlier this year the UK government introduced the Enterprise Finance Guarantee scheme (EFG). The EFG replaced the Small Firms Loan Guarantee Scheme (SFLG) with the commitment to helping small businesses raise the funds they require to trade through the current economic downturn. The EFG is based on the government guaranteeing up to 75% of the value of a commercial loan offered by a company's bank. The company's directors will normally be required to personally guarantee the remaining 25% of the loan.

Companies are still finding it extremely difficult to raise vital finance despite the government claims for the EFG scheme. According to a recent report published by the Department for Business, Innovation and Skills, in the year up until the 3rd April 2009 a total of 2,369 loan guarantees to the value of GBP 178m had been issued, under both the Small Firms Loan Guarantee Scheme and the Enterprise Finance Guarantee scheme. This figure is significantly less than the GBP 205m guaranteed in the previous year. It is also far below the scheme's GBP 360m budget set by the Government in March 2008.

For this financial year the outlook now is just as worrying. The latest Bank of England figures show that new lending to companies continued to contract in May 2009, following a fall in April. Clearly, despite the government's assurances and backing, UK banks remain extremely reluctant to provide new loan facilities for businesses. I have recently had a number of discussions with small business owners which back up this analysis. It seems common place that new loan and commercial mortgage applications with the backing of solid business plans are being consistently declined (often at the last minute) with little or no rational explanation from the lender.

Based on the current evidence it seems very much that the banking system is reluctant to back any business opportunity unless it has almost a cast iron prospect of success. This situation is certainly stifling entrepreneurial activity and thus undermining the driving force required to kick start the economy and move it out of recession.

Given this situation, business owners are well advised to consider alternative options for raising finance. Business refinancing can help in this area. Business refinancing generally involves raising cash secured against tangible business assets thus giving the bank real security and the comfort required to release funds. Examples of business refinancing include:

Asset refinancing

The process of borrowing against the value of any fixed assets which are owned by the business.

Invoice financing

The process of raising money based on a company's outstanding invoices. Invoice financing could allow a company to draw down up to 90% of the invoice value immediately on the issue of a valid invoice.

Trade financing

Enabling a business to receive up to 80% of the confirmed order value up front to pay the suppliers required to fulfil the order.

Until lending eases businesses will struggle to trade out of the current economic situation. However it seems that they are unable to rely on Government initiatives such as the Enterprise Finance Guarantee scheme to allow them to access the funds they need for expansion and growth. Unfortunately Business Refinancing will not be suitable for all. However it is certainly an option that should be reviewed by all in the current climate.