All startups that followed the “not all eggs in one basket” principle will be alright on this. Suppose they need to have 1M every other week to meet payroll obligations where 200k goes to taxes, 100k goes to insurance/401k, and 700k goes to employees. If you have 3 banks each with an account for payroll checks then there is no risk of delay as you put over 233.34k in each. You also identify the top earners and notify them long before a crisis that their paychecks are most at risk of delays in case of any bank hiccups and that should be less than 20% of the staff. In most cases the reputable ones will have a founder/CEO with several sources of instant liquidity, like home equity lines, Treasury direct account, and other sources available to do infusions to cover a couple of payrolls. If they don’t then they aren’t reputable and deserve to fail.
“If they don’t then they aren’t reputable and deserve to fail.”
Yup—this is like the Wizard of Oz.
The curtain is about to open.....
Honest question - I'm an engineer, not a financial guy - how many payroll processing firms work with multiple bank accounts to pull on?
I can see how, given the massive load of work that goes on in a startup, that such a dumb mistake of "all eggs in one basket" could happen.
Often the CFO guy in a startup is recommended by your VC, and the founders are 99% of time are subject-matter / technical guys. That's why it's really important to not have stupid VC funding you, so they guide you right!