By Paul Chase | Off-Ramp Advisors LLC, Sell-side M&A for distressed businesses, $3M–$50M revenue
Published in: Before You File | June 30, 2026 at 8:00am
Disclaimer: This article is for informational purposes only. It does not constitute legal, financial, or tax advice and should not be relied upon as such. Every business situation is different. Consult a qualified attorney, CPA, or financial advisor before making decisions about your business. Neither Paul Chase nor Off-Ramp Advisors LLC are attorneys or financial professionals.
I’ve sat across the table from owners at this exact moment. The payroll date is 48 hours away. The account doesn’t have enough to cover it. And the owner is trying to figure out which bill to not pay so that payroll can happen.
That conversation is always the same. The owner is exhausted, usually hasn’t slept, and has been carrying this alone for weeks. And the first thing I have to tell them is something most people don’t know until it’s too late.
Let me explain.
The thing that can follow you personally
When your business withholds federal income tax, Social Security, and Medicare from employee paychecks, those funds don’t belong to the business. They belong to the federal government. Your company is holding them in trust until the scheduled deposit date.
If those funds are not remitted to the IRS on time, the IRS can assess what’s called the Trust Fund Recovery Penalty. Personal liability. Against the owners and officers responsible for the nonpayment.
Not the business. You.
It doesn’t matter if your company is an LLC or an S-corp. It doesn’t go away in a business bankruptcy. It doesn’t get resolved when the business is sold. It follows you. (IRS source)
So if you’re sitting there deciding whether to miss a vendor payment or miss a payroll tax deposit, that decision has already been made for you. The vendor can negotiate. The IRS does not negotiate the Trust Fund Recovery Penalty. It assesses it.
Pay the tax deposit first.
The next 24 hours
Tell your employees. Most states require employers to notify employees of a delayed or missed payroll within a specific timeframe. The rules vary by state. But beyond the legal requirement, there’s a practical one. Employees who find out from a failed direct deposit with no warning don’t stay. They start looking for jobs that day. A direct, honest explanation — timed before the failed deposit, not after — holds a team together longer than silence does.
Call your payroll provider. If your payroll is scheduled for automated processing and the funds aren’t there, notify them now. Most providers won’t process a payroll with insufficient funds. But the notification on your end prevents an overdraft or a missed filing that creates another compliance problem on top of this one.
Call your bank. Most owners don’t know what their bank can do in a cash emergency. An emergency draw on a line of credit, even a partial one, may cover the immediate payroll. Overdraft protection may exist on the account. This call needs to happen before the business day ends, not after.
Remit the payroll taxes even if you can’t cover the full net payroll. The withheld portion — income tax, Social Security, Medicare — goes to the IRS before anything else. That’s the deposit that triggers the TFRP if it’s missed. If there’s any way to remit it, do it.
This week
An emergency draw on your line of credit, if you haven’t already fully drawn it, is the right use of that tool. A line of credit exists for exactly this situation.
If you have outstanding receivables, invoice factoring lets you sell those receivables to a factoring company at a discount for immediate cash. It’s expensive — the discount can run 2% to 5% per month. But if it covers payroll and avoids the TFRP exposure, the math is worth doing.
Call your largest receivables directly. Ask for early payment. Many customers will pay before their normal terms if you ask them plainly.
Contact key vendors and suppliers. A delayed vendor payment is a far less serious problem than a missed payroll tax deposit. Most vendors prefer a conversation to a default. Ask for 30 to 60 days of additional runway.
If you’re considering injecting personal capital — savings, a home equity line, retirement funds — that decision needs a CPA in the room. The question isn’t just whether you have the money. It’s whether putting it in changes the outcome, or just delays the same conversation by 90 days.
Talk to your key people. The employees who keep the operation running. The ones who know the clients. The ones who know where everything is. They are watching. An owner who is honest with them about a hard situation and who is visibly doing something about it holds the team together. An owner who goes quiet loses them quietly.
What this is usually telling you
About 82 percent of business failures trace back to cash flow breakdowns. (Credit Suite)
A missed payroll is almost never the root problem. It’s the moment when a cash flow issue that has been building for months finally becomes undeniable. The revenue has been declining. The line of credit has been getting smaller. The vendor terms have been stretching. And now the payroll date has arrived and there isn’t enough.
The honest question to ask yourself is this: is this a temporary disruption in an otherwise functional business, or is this what structural failure looks like?
Temporary means a large receivable is delayed, there’s a seasonal trough that will reverse, or a one-time event knocked the cash position. The short-term steps above may be enough.
Structural means revenue has been trending down for multiple quarters, the model isn’t generating enough to cover fixed costs, and the line of credit is fully drawn. The short-term steps buy time. They don’t solve the problem. And most owners know the difference, even if they haven’t said it out loud yet.
When a sale is still possible
A distressed sale can happen faster than most owners realize. The typical timeline is 30 to 90 days. That’s faster than most other paths.
What makes a business still sellable at this stage is whether there is something a buyer can acquire and operate. Revenue. A workforce. A customer base. A buyer doesn’t need the business to be healthy. A buyer needs something worth buying.
The owners I can help are the ones who call while the business is still running. While the employees are still there. While the customers haven’t found alternatives yet. Once the operation has materially degraded — key people gone, customer relationships broken — the window closes.
Owners who call during a payroll crisis but while things are still operating are not too late in most cases. Owners who wait usually are.
Where this goes from here
The steps above cover the next 24 to 72 hours. Beyond that, the question is whether this is temporary or structural, and if it’s structural, what path makes the most sense.
A sell-side advisor can give you a quick preliminary read on whether your business is still in a position to sell and what that would look like given where things are. That conversation is confidential, costs nothing, and doesn’t commit you to anything.
If you’re working through a situation like this, I’m available. Schedule a confidential conversation here.
Related: Sell My Business Before Bankruptcy: What Actually Happens and When It’s the Right Move
Related: My Bank Called My Business Loan. Here’s What Your Options Actually Are.
Sources:
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• Internal Revenue Service, Employment Taxes and the Trust Fund Recovery Penalty (TFRP): https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp
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• Credit Suite, Small Business Lending Statistics and Trends (82% of failures tied to cash flow): https://www.creditsuite.com/blog/small-business-lending-statistics-and-trends/
