Things are scary right now — we’re seeing how size and capital are rewarded in tough times, not just good ones. We’re recognizing that operating on cash flow and not having savings is risky. And we’re keenly aware of how our employees depend on their jobs for their health insurance.
But it’s not all grim… we’re not entirely powerless. There are loads of resources out there, and if we went into entrepreneurship in the first place, chances are we have some of our own: Creativity, Resilience, and Flexibility:
– Creativity? Brainstorm. Imagine a new world, not a return to the old one.
– Resiliency? You’ve likely overcome struggles before, or know other business owners who have. Tap into this.
– Flexibility? Take off the blinders and open up your view to all the possibilities out there.
With that in mind, here are ten valuable pieces of advice for what to do next.
1) If you still have staff you’re paying, I recommend taking advantage of the Employee Retention Tax Credit that you get by reducing your required regular payroll deposits, and applying for the balance on Form 7200. I know that Gusto (my favorite payroll company) is helping many of its clients through this process, which provides immediate cash in the form of certain payroll tax payments that don’t have to be made (in essence an advance on the credit). Treasury has indicated that you cannot take ERTC and PPP at the same time (though it sounds like they are working on a way for folks to take advantage of ERTC and simply have it deducted from the PPP forgiveness should the business end up with PPP funding).
2) Payroll Tax Deferral – similar to the above, in the sense that you only benefit from this if you have staff still on payroll (or yourself if you are a shareholder-employee), but this one is just a delayed payment of the employer portion of Social Security taxes. Again, I know Gusto is doing this for their clients on request. And again, guidance initially indicated that you couldn’t do payroll deferrals and PPP, but has since indicated that you can defer these payroll taxes until the end of the PPP forgiveness period, and the original due dates for the deferment will stick. More info here.
3) EIDL – the Economic Injury Disaster Loans are still an option for farmers only. Only the advance is forgiven, and there’s no way to know how much of an advance you’ll get (though in general it seems to line up with $1K per employee), but if you need cash, you should apply. If you request $25K or less, there’s no personal guarantee or collateral required.
4) Regarding the Paycheck Protection Program:
– Get your PPP application in order if you have not applied already. I’ve got a whole list of lenders accepting applications in this blog post.
– Similarly, work with your accountant to establish a plan for tracking the loan for forgiveness, so you have everything set up properly from the moment the funds are received. There’s a lot we don’t know about the forgiveness calculations from SBA. Make a plan to structure your forgiveness-period payroll to ensure the maximum amount of the loan will be forgiven.
– And make sure you have a business checking account! Some folks are using personal checking accounts for their business – these rules about this changed four years ago, but some were apparently grandfathered in, and these small business owners are finding that the banks will not even consider their applications as a result – even though they’ve been banking there for ages. The banks are prohibited from depositing PPP funds into a personal account.
5) Pivot Your Business: If you haven’t already, start redefining your business model now. Even once the stay-at-home order is lifted, it might be quite some time before people are comfortable shopping or dining or drinking out. Research alternative models; ask around as to what other businesses are doing; investigate new revenue streams; communicate with your employees.
Some examples:
– switching to online sales and other new/expanded sales channels (even for service-based businesses like entertainment, makeup/hair lessons, art/hobby and cooking classes);
– offering virtual shopping and curbside pickup;
– pairing with other businesses to deliver/ship care-packages;
– going to a 100% take-out model with a contactless pick-up window;
– having staff take care of customer ordering and deliveries instead of GrubHub or Caviar, or switch to a co-op bike delivery service;
– provide services for free and ask for tips, donations, or pay-as-you-can;
– increasing your marketing and social media presence, improving your website;
– offering in-demand products along with your usual offerings, such as groceries or alcohol;
– teaming up with your local Chamber of Commerce to establish a virtual neighborhood store, and more.
This is likely the #1 most important thing you can do to come out on the other side once this is behind us. And don’t just take my word for it. Lots of resources are out there to help you reinvent yourself. Among them: five things to recognize now: you’re not alone; what you do now will determine your future success; recognize that the future has already changed; we can never over-prepare… and this too shall pass.
6) Go on unemployment. If you’re no longer able to pay yourself, or you’re paying yourself a substantially reduced salary, you may be eligible. Shareholder-employees have been eligible since Day One for the full amount (they receive W-2s from their own companies and have been paying into the system all along), and as of yesterday, self-employed folks such as sole proprietors and partners in partnerships are able to apply. Even if you received PPP funds, you can claim backpay for the period of time between when you stopped being able to pay yourself and when the PPP funds arrived.
7) Remember that there is currently no 10% penalty for withdrawing retirement funds – if you feel confident that you can survive this period but need cash now to do it, consider accessing those accounts now.
8) Cash flow forecasting is something I wish all small businesses did, but they don’t. Consider working with your accountant to build a cash-flow projection system to figure out how to get through this. CashFlowTool.com is a great resource, and they offer free webinars on how to forecast, if you don’t have a professional you can go to (or even if you do).
Once you’ve gone through the effort, you can then see:
– Are there any weeks where it looks like there will be a cash shortfall?
– If so, what is the plan to address that?
– Can we adjust in- and outflows to attain a better cash position by:
- Reducing days sales in accounts receivable
- Extending repayment days in accounts payable
- Negotiating better terms with suppliers on purchases
- Reducing operating expenses
- Delaying capital purchases
- Sell equipment that is no longer needed
- Run specials on any slow-moving inventory to convert it to cash
- Have owners contribute additional equity or loans to the company
Wegner CPAs provides a nice template for a 13-week cash flow projection.
9) Apply for small business grants — the focus has been on PPP, EIDL, ERTC and other federal relief efforts, but remember that there are public and private resources available at the state, county and city levels as well. You can just google “COVID relief” and the name of your industry and see the various options.
10) And I know this sounds insane… but try to take moments, tiny little vacations, away from your anxiety. I have to tell myself this every day. There is so much that is out of our hands; we have to work on the things over which we have control, and try to let go of what we don’t. The world isn’t working the way we want it to, or maybe even thought it did. For a lot of us, that’s a shock, and the emotional weight of that can pull us down. To survive this, we’ll need to shake off the anxiety and plan for a brighter future.
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