Small business employers have large portions on their plate right now and tons of information to digest. They face financial uncertainty, employee needs, and restricted—or nonexistent—cash flow. Our goal here is to simplify next steps for small business owners...
Small business employers have large portions on their plate right now and tons of information to digest. They face financial uncertainty, employee needs, and restricted—or nonexistent—cash flow. Our goal here is to simplify next steps for small business owners with employees.
We present a basic outline of a disaster plan that incorporates bite-sized features of the Coronavirus Aid, Relief, and Economic Security Act (CARES) and the Families First Coronavirus Response Act (FFCRA).
Within these acts we are going to focus on the programs we think will be most effective for small businesses: Economic Injury Disaster Loans (EIDL) Paycheck Protection Program (PPP) Loans and the Employee Retention Credit.
First, focus on your employees.
Your employees are, of course, central to your business. Caring for them amid hardship will engender trust and camaraderie that pay long-term dividends.
Apply for an Economic Injury Disaster Loan (EIDL) and also a Paycheck Protection Program Loan (PPP) if you think you need more than 10k.
Apply for the EIDL first. The fastest way to get 10k in cash is to apply for the EIDL here and these amounts can later be converted to PPP loans or be paid back. We think if you have any question about your business surviving or being able to meet payroll you should get this done now.
The Paycheck Protection Program Loans are going to be the simplest and most valuable relief for most small businesses: they include the powerful element of loan forgiveness and they allow business owners discretion over the timing and use of funds. Most affected businesses will be eligible for these super low-interest loans. In most cases, if you’re using the loan to keep employees’ lives and wages normal, the loan will be forgiven.
Know that you will be able to use PPP loan proceeds to pay health care costs, wages (including your own), rent, utilities, and interest on pre-existing debt. As long as you take care to meet certain criteria you may be eligible to have 8 weeks of these costs forgiven. Unlike other debt, PPP Loan forgiveness is not taxable as income.
These loans are going to take at least several weeks to process, so get the ball rolling! Contact a bank and begin the application process for a Paycheck Protection Program Loan. You’ll need to be prepared with decent books and records. You may be able to apply for a bridge loan in the meantime with the same bank. There is a cap on the amount of loans under this program so best to get in line now.
PRO TIP: Open a separate bank account to track the use of loan proceeds for qualified costs and know that the amounts used in the 8 weeks following loan disbursement will be forgiven.
See the differences between the loans in this Forbes article and using the links at the bottom of this Blog
Contact your Payroll Provider to discuss furlough and Reduction of hours regulations
Leave employee pay rates alone as much as possible to prevent complication and dial down the hours as needed. Similarly, if your business is structured as a corporation, do not change your own compensation. Under the PPP, if employee hours are cut beyond certain limits (25%) after the receipt of the loan proceeds, some of the loan may not be forgiven.
Contact your payroll provider after reviewing its website notifications and documents; make sure that you’re following appropriate state procedures for furlough, reducing hours, and notifying employees. After clearing your plan with your payroll provider, discuss hours and expectations with your employees. Encourage affected employees to begin applying for disaster-relief unemployment insurance benefits at the state level, with instructions to communicate that you are placing them on furlough or reducing their hours because of the coronavirus disaster and that they are applying for disaster relief unemployment benefits.
Consider Paid Family or Sick Leave
While you are in touch with your payroll provider, discuss whether it makes sense to pay a two-week payroll period as paid family or sick leave for employees. You may not be required to pay, but it could already be on the table for discussion. If your business was shut down because of a government order or you are grossing less than 50% of last year’s quarterly revenue, you may be eligible for an Employee Retention payroll tax credit for 50% of the paid sick leave wages for up to $10,000 per employee (max credit of $5,000 per employee) for wages paid between March 13 and Dec 31, 2020.
Note: This may be a challenge for payroll providers and employers alike to implement, so we’d suggest starting with the more straightforward Paycheck Protection Loan program.
Talk to employees you’ve had to lay off - Make a plan to Hire them again (soon)
If you’ve already had to lay off employees for cash flow reasons (and you did not otherwise want to fire them), get back in touch! Let them know you’ve got a plan to get cash and that you want to rehire them once the loan proceeds come through or cash becomes otherwise available.
Encourage employees to file their taxes
Encourage employees to file 2019 individual tax returns with updated address and direct deposit information. That way they can quickly receive FFCRA payments of up to $1,200 each enacted as part of the CARES Act. Not only will filing expedite receipt of the cash payments from the U.S. government, this will enable them to collect any tax refund they have coming from 2019. Although the tax-filing deadline has been pushed back to July 15, many people are better off filing as soon as they can.
Next, focus on saving your business and helping yourself.
Every small business owner faces tons of responsibility and uncertainty. Should you continue to operate through the crisis? Should you close until you have a reasonable chance of generating positive cash flow? We offer the following tips:
Know your (monthly) numbers
You’ll need them in the months ahead and may need them to apply for and track benefits. They will become a important part of PPP loan forgiveness and making sure that refundable credits and rebates are not subject to taxation. Use budgeting tools to adjust your forecast for revenues, and set targets for the business for when conditions improve.
Don’t forget to pay yourself
If you are a C or an S-corporation you should already be on the payroll and you can generally treat yourself as an employee (except for the Employee Retention Credit related party rules). If your business cannot continue to pay you because cash flow has evaporated, you should apply for unemployment just like your employees. You will not get Unemployment or Disaster Assistance for investment income (e.g. Dividends or Corp Distributions). If you are a single-member LLC or a managing member of a multi-member LLC taxed as a partnership, then you can apply for PUA (Pandemic Unemployment Assistance) as a self-employed person based on your self-employed earnings.
Use extraordinary business care and prudence
Reduce your operating expenses. Look for recurring expenses that are less valuable while business is slow or stopped. Plug any holes that are leaking cash from your business or personal accounts.
Beware of expensive internet lenders and credit cards
This is not a time to incur debt at exorbitant rates. If you have good-looking financials outside of this pandemic, lenders should be willing to lend to you at reasonable rates. Watch out for “loan fees” and “closing costs” that increase the price tag of the loan.
Get your 2019 tax return drafted or Filed
If you have a refund coming and/or had a low income year, it might help increase your cash or your cash FFCRA rebate. Even if you want to wait to efile and/or pay your 2019 tax liability, consider a Zoom meeting with a Massachusetts or California CPA who knows taxes to get their perspective of your situation and your resources. They’ll likely be aware of the relief measures and tax changes that happened alongside the emergency legislation.
Check Other resources available in your state
California - https://business.ca.gov/coronavirus-2019/
Massachusetts - https://www.mass.gov/info-details/covid-19-guidance-and-directives#businesses-&-employment-
Get in touch with our tax accountants and bookkeepers
Sign up for our tax whitepaper for small business and follow us on Twitter and/or Facebook
Schedule a Zoom Consultation - First 15 minutes are free
Do your homework
See a PPP Fact Sheet here
See The Small Business owners guide to the CARES Act here