UPDATED: WEDNESDAY, JULY 1, 2020


When is the final date I can apply for PPP? 

You now have until August 8th to apply to the Paycheck Protection Program. The Senate voted to extend the federal loan program by five additional weeks.

Should I seek early forgiveness of my PPP?

First, assess what has changed since the economy started reopening. If the loan is not forgiven – fully or partially – you now have a loan.  If you meet the forgiveness requirements in 8-weeks, you may want to apply for forgiveness now before the rules change again.  If you need 24-weeks to reach one of the safe harbors, you will need to track all use of funds and employee related actions very deliberately. Unfortunately, many companies may receive approval from their bank only to lose it if the SBA selects their loan for a detailed review.

How do I manage cash flow when my market is not returning as fast as I had hoped?​

The second wave of economic shock may be slower or less robust responses from your clients and customers even as they reopen.  You should reassess who your target client/customer market is. Your initial assessment during the shutdown may be off the mark.  You have likely received funds and support to survive.

If failure is not an option for you plan like it was the 1st day in business.  Plan to take your skills and products to the customers who will reward you with sales.  Calculate the cash you need to succeed.  Start with your average month pre-COVID.  What has changed? Adjust revenue and expenses accordingly.  Calculate what sales level will cover overhead.

Explore new funding resources. If you were financially strong before the shutdown  talk to your bank about a new SBA 7(a) loan with the built-in payment deferment (SBA will pay the first 6 monthly payments for you) (d).  Google search for local and state programs (c) – some fintech’s like Honeycomb (b) are hosting crowdfunding capital for local patrons to support their favorite local businesses.  Act now! Plan to succeed!

How do I know if I qualify for PPP? 

If you have payroll, you qualify by using the average monthly payroll in 2019 times 2.5 to equal the maximum loan.

If you are self-employed or a single-member LLC, you file a Schedule C, your net profit is considered owner’s payroll.  You qualify by taking line 31 of your Schedule C for 2019 – net profit – divide by 12, then multiply by 2.5.  If you also have employees, follow the payroll calculation, and add to your net profit and calculations.

Is PPP right for my business? How do I calculate the PPP loan? 

PPP can be forgiven if at least 60% is used for payroll and no more than 40% is used for rent, interest on debt, and utilities over a 24-week period beginning at date of loan disbursement.  If these requirements meet your needs, then the loan could be a good fit. For loans disbursed prior to 6/5/20 you can opt to stay with an 8-week covered period if it would improve your chances for forgiveness.

Expenses covered by PPP forgiveness, however, start when the loan is disbursed and cover 8 or 24 weeks.  If your business is not likely to be open or to need full staff in that 8-week period, you may not qualify for forgiveness and may benefit from the new 24-week option.  If your business could repay the loan at 1% over 5years, you may still want to apply.

How do I apply for PPP If I have multiple businesses?

First, check the www.SBA.gov size standards. If the sum of the businesses you own is greater than the size standard for your industry (measured by NAICS code), none of your businesses qualify. If you don’t know your NAICS code, the SBA site will help you walk through a search by type of industry. 

What if I own multiple businesses in more than one NAICS code category? 

If your multiple businesses fall into more than one NAICS code, the size standard to use is the NAICS code for the largest one.  Most size limits are set by the number of employees, but some are based on annual sales or company net worth.

The SBA determines the affiliation of companies by common ownership and control. If the combined affiliated companies are within the size standard, then you can apply for a PPP loan for each one separately. Only use the payroll from the business making the application.

If you also own business(s) that file their taxes using a Schedule C (sole proprietors, self-employed, single member LLCs) you use Line 31 of the Schl. C (which is net profit) to calculate the average weekly income to the owner. If that business also has employees, you can determine their average weekly payroll and add it to your calculation for average week.

How can I apply to PPP if I am a new business and cannot calculate prior wages? 

If you were in business on 2/15/20, you qualify for PPP. You should use your payroll from 1/1/20 to 2/29/20 to calculate your average weekly payroll. If you started after January 1st, use the period from start to 2/29/20.

Since you have limited supporting information for your request, carefully document your payroll is based on. Documentation might include contracts if they exist with employees, job descriptions or offer letters at the time of hire, and/or projections you might have done that incorporate payroll and demonstrate the intention to continue that payroll.

If your business is “new” because you have had a change in ownership, the SBA will accept payroll records from the predecessor company.

Even if you’re showing loss, but have employees or contractors, can you apply?

It depends on what your business legal entity is. If you are a sole proprietor or a single member LLC (file your business taxes on a Schedule C) eligibility for PPP is based on Line 31 of the Schedule C “Net Profit.” If that line is less than zero  you do not qualify

If your company is a corporation, partnership or multi-member LLC, the eligibility is based on your payroll.  If you have payroll you can apply. Whether or not the business shows a loss is not a factor.It depends on what your business legal entity is. If you are a sole proprietor or a single member LLC (file your business taxes on a Schedule C) eligibility for PPP is based on Line 31 of the Schedule C “Net Profit.” If that line is less than zero  you do not qualify.

Can PPP be used to retroactively pay employees?

SBA guidance refers to normal and customary payroll. The absence of specific guidance on retroactive pay puts the burden on the borrower to show “normal and customary.”

For example, if you would normally have paid an employee for the retroactive period – and you are now making that payment – that would support normal and customary. Being able to use retroactive pay just to meet the 60% use of proceeds test, however, will not work. New guidance states the payroll must be paid within the covered period – or incurred within the covered period – and paid in the next payroll cycle.

Can we use PPP to pay new employees we hire during this time?

Yes.  The law was designed to support payroll. New hires are a positive part of the payroll the law was meant to fund.

I applied for PPP but still have not heard back from my bank, SBA or local CDFI. What do I do now?

If you have not heard from the lender where you applied, consider applying to another lender.  You can only receive one loan, but you can apply at more than one place.  Some lenders have larger backlogs or slower processing than others. Keep in mind the deadline for a lender to approve a PPP loan is 6/30/20 and has not been extended.

How should I be tracking the use of PPP?

Whether or not your primary objective is forgiveness, this is a government loan with specific requirements, so track the use of proceeds very carefully.  If you have QuickBooks, set up a separate class so all expenses paid with PPP funds can be easily identified.

Keep all documentation to support your use of PPP funds for specific expenses. In addition, keep all records regarding changes in employee’s hours, pay and special circumstances.  Documenting these will be critical if your Forgiveness Application is reviewed and you have to support your calculations.

Does PPP have to be spent within the 8-week time frame?

Effective 6/5/20 all PPP loans have a 24-week covered period for forgiveness. Prior loans can request that they remain on an 8-week covered period. The 24 weeks gives you 16 more weeks to spend the required 60% on payroll for the forgiveness calculation.

Expenses covered by PPP forgiveness start when the loan is disbursed and cover an 8 or 24-week period.  If your business is not likely to be open or to need full staff in that period, you may not qualify for forgiveness.  If your business could repay the loan at 1% over 5 years, you may still want to apply.

With the new 24-week extension to use PPP loans, what are other companies doing?

Some companies I worked with used the 8-weeks of PPP to put their employees to work on pivoting to new markets, new customers, new ways of delivering products and services – and they may opt not to extend from 8-weeks to 24-weeks.  Others can decide how to use the changes.  The extension to 24-weeks may enable companies to bring back employees on a schedule that better fits the rules controlling their reopening

How do I apply to PPP loan forgiveness?

Complete the forgiveness application and submit it with the requested documentation to the same bank who gave you the PPP loan. There are three options as to when you should apply: 1) at the end of your 8-week covered period if that is the option you selected, or 2) at the end of the 24-week covered period or 3) after 12/30/20 if you need the extended time to meet wage & FTE requirements for the safe harbors. Most banks will have applications and instructions on their websites in the near future. You can use this SBA link to preview the application. https://www.sba.gov/document/sba-form–paycheck-protection-program-loan-forgiveness-application

It is prudent to assemble all the data you need to prove you have met the test for forgiveness prior to the end of the 8-weeks to assure you are ready. Because the calculations are complex, it is best to have your financial team review before submitting.

Once you have submitted the application, the bank will make the approval decision. Next, the SBA will review and confirm the bank’s approval. The SBA can deny a forgiveness action the bank has approved if the SBA determines the forgiveness should be reduced or canceled.

What do I need to know about PPP loan forgiveness and the forgiveness application?

The maximum loan forgiveness requires that at least 60% of proceeds be used for payroll and no more than 40% for loan interest, rent, and utilities. If your use of proceeds for eligible payroll costs are less than 60%, your total forgiveness will be reduced proportionately. For example, if you borrowed $100,000 and only spent $56,000 on payroll – not the $60,000 that equals 60%. The calculation is “54,000 is 60% of what amount?” 54,000 is 60% of 90,000.  Your maximum forgiveness therefore is 90,000. The forgiveness amount would be reduced further if wages decreased more than 25% or employee FTE count declined.

What changes have been introduced since the forgiveness application was launched

The original PPP application was based on body count, whereas loan forgiveness is based on full-time equivalency (FTE).

Unlike the expected bulk FTE calculation for the company as a whole, the forgiveness calculation is done for each employee based on a 40-hour full-time workweek.

There are two ways to calculate FTE for loan forgiveness.

FIRST METHOD
For each employee, calculate average weekly hours for the 8-week or 24-week covered period, divide by 40, and round the total to the nearest whole number – not to exceed 1.

Example:
Tom: 50 hrs / 40 = 1.25 = 1
Susie: 60 hrs / 40 = 1.5 = 1
Molly: 10 hrs / 40 = 0.25 = 0.3

SECOND METHOD
 Assign a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.

Example:
Bill: 43 hrs / week = 1
Mary: 10 hrs / week = 0.5
Sue: 30 hrs / week = 0.5

The 60% / 40% rule remains the same, but loan forgiveness is reduced if a business shows a decline in either FTE or average wages.

To test if your business is at risk of showing a decline, use these tests:

Test one, FTE

  1. Calculate the FTE you started with by using one of these benchmarks: period 2/15/19 – 6/30/19; period 1/1/20 – 2/29/20; trailing 12 months (seasonal employees only).
  2. Calculate 8 or 24-week forgiveness FTE by choosing one of the methods specified above.
  3. Compare the two. If the total FTE’s for the 8 or 24 weeks is less than the benchmark FTE, then the amount of forgiveness will be reduced accordingly.

 Example: $100K loan, over 8 or 24 weeks, $60K spent on payroll, $40K spent on rent, utilities, etc.  Spending allocation is correct, but if at forgiveness the total FTE is only 90% of the benchmark FTE, then only 90% of the loan is forgiven, and 10% has to be repaid. For this example, it would be $90K forgiven and $10K to be repaid.

FTE SAFE HARBOR: If full-time employee levels returned to the February 15, 2020 level (not benchmark) by December 31, 2020, then there is 100% forgiveness. If you were unable to operate between 2/15/20 and the end of the Covered Period at the same level of business activity as before 2/15/20 due to rules or restrictions from HHS, CDC, or OSHA – all federal agencies – you have met the safe harbor and there will be no reduction in forgiveness from the FTE calculation.

Test two, reduced wages

  1. Compare 1/1/20 – 3/31/20 average wages to an 8 or 24-week covered period. If an 8 or 24-week wage is less than 75% of the benchmark per employee, any salary reduction greater than 25% will reduce forgiveness proportionately. This calculation intentionally excludes a reduction in wages due to a decrease in FTE.Similar to FTE, there is a safe harbor for wages that have returned to the February 15, 2020 level – not benchmark– by June 30, 2020

Have there been changes to forgiveness?

Forgiveness is possible with less dollars into payroll. The easing from the 75% requirement to 60% allows companies to shift up to 40% of loan proceeds toward other expenses such as rent, utilities, interest on debt, transportation.

Other changes improve safe harbor options when there are obstacles to rehiring because you were unable to return to the same level of business activity or rehire previously employed individuals or similarly qualified individuals.

The new law also makes it clear there will be no penalty if you don’t qualify for forgiveness or decide to not apply for forgiveness. Many companies will decide to not seek forgiveness and accept PPP as a loan.* Funds could be used for legitimate business expenses necessary to reopen and thrive,­ such as insurance, cleaning, protective barriers/products, supplies and inventory.

Now is the time to evaluate what your customers, suppliers and methods of delivery look like. Determine the timeline for a return of sales and profits.
*A PPP loan has 1% interest and now has 5 years for repayment after a 6-month deferment of the first payment

If you need to return your PPP, who do you contact? Is there a deadline for returns?

The deadline for returning funds under a safe harbor for those who applied and received funds was 5/18/20. On May 13th, however, a broader safe harbor was authorized for any borrowers, together with affiliates, who received PPP funds totaling less than $2 million. The new safe harbor says they will be deemed to have met the required certification concerning necessity of the loan without further testing.

If you borrowed more than $2 million and feel you should return it, simply pay the loan early.  All loans are possibly subject to random audit by SBA and the Office of the Inspector General (OIG).  If the funds were repaid voluntarily – and early – it makes a stronger case for good faith return of funds.  The return of funds should be made to the bank where you applied.

Can you apply for both unemployment and PPP and then remove yourself from one of the programs if you’re approved for both?

The new federal unemployment piece made it easier for entrepreneurs to apply for both while they were still in limbo.  If you are paying yourself via a PPP loan, however, you are correct to notify unemployment that you are no longer eligible.

If you run out of PPP funds before you can reopen your business, you can reapply for unemployment – based on your state’s unemployment rules.

How do the maximum capacity and viable protection rules impact my costs? Profits?

The new rules will impact cost to deliver products or services. These rules should be taken into consideration when calculating your profit margins.

If you are B2C (Business to Consumer), the maximum capacity rule will reduce the volume of customers. For example, a restaurant will be forced to serve to fewer people during the dinner hour and diners may not have the option to add a dessert or after-dinner drinks to their tab due to time restraints.

If you are B2B (Business to Business), maximum capacity may limit the number of staff you can have in the office or on an assembly line at one time. Calculate the cost to spread the same work you normally do across multiple locations or shifts. If you are losing efficiency, your margins will shrink.

Both groups will be impacted by viable protection. Masks, temperature checks, barriers, distancing, one-way walkways and face forward seating are costly and will reduce profit.

Do the maximum capacity and viable protection rules change the way I should think about PPP loans?

As Congress negotiates changes to PPP, calculate how the changes required to re-open your business will impact your profit margin. Remember: Cash follows profit. If you need cash, you must be profitable. The newest PPP legislation created a safe harbor if your business was shut down or slowed down as a result of adhering to federal law, CDC, HHS or OSHA rules, including state interpretation of federal regulations from these agencies. If you qualify for this safe harbor you will receive full forgiveness for applicable expenses as if you were fully staffed during the 8 or 24-week covered period.

Are EIDL applications being accepted right now?

The portal for applications has reopened for all businesses. Until the initial backlog was caught up, the portal was only accepting agricultural businesses and farms. EIDL is a working capital loan not tied to payroll. If you need the loan – if you have vendor expenses, insurance, COVID remodel or cleaning regulations – build your case for “economic harm” and use the funds to help reopen and recover.

How can I take advantages of the changes to EDIL?

“Don’t tell me why I can’t…tell me how I can” is currently the sign I now have over my inbox. You can now apply for an Economic Injury Disaster Loan (EIDL) as the portal reopened for all small businesses last week. An EIDL loan could fund operations if your pipeline is stretching out. Keep in mind that big accounts are taking longer to navigate their remote workers for approvals.

EIDL is a working capital loan not tied to payroll. You can use the new 24-week covered period for the PPP loan to pay more of the proceeds toward payroll to meet the new lower threshold of 60% for forgiveness. The extended period will give you time to ramp up employees as your business reopens and customers return.

You can test the new safe harbors that provide full forgiveness if 1)federal agencies caused shut down or slowdown of your business or 2) you are having difficulty hiring previously employed individuals or similarly qualified employees or 3) you expect to return to full wage and FTE levels by 12/30/20.

If you are a sole proprietor or single member LLC, you now can pay yourself for 10 weeks instead of the previous 8 weeks. You can decide to accept that some of the funds will not be forgiven and plan for the new loan terms: now, no payments for 10 months, 1% interest and the new 5-year maturity. The funds you needed to recover can now be a manageable loan.

You can match your business profile and use of PPP proceeds against the new EZ Forgiveness Application and breath relief if you meet the requirements. If you have not yet applied for a PPP loan you have until the end of this week, as lenders must have reviewed and approved your application before August 8th.

I’ve completed my EIDL application already. Now what?

If you have already completed an application and received an SBA number, you should have received the advance. SBA is doing preliminary underwriting on the application you filled out with the following actions taken:

  • Sending decline letters with appeal instructions.
  • Some approvals are being sent based on the original application.
  • Most borrowers are getting requests for more information.

EIDL amounts have changed since I applied. How much money should I expect?

EIDL amounts were changed because demand exceeded available funds.  As of now you can expect an advance (which is a grant, not a loan) equal to $1,000 per employee up to $10,000.  SBA will follow up after paying the advance to determine the extent of the “economic injury” so have your case and your documents ready to support your case.  Recent changes cap the maximum loan at $150,000.

I applied for EIDL and I just received the advance, am I still eligible to apply to other loan programs? 

You are still eligible for additional funds from EIDL. After the initial advance, SBA will review your application and either deny additional funds, approve a loan or request additional information. Whatever the decision, the advance you received is yours to keep. It is not a loan. It is a grant.

When applying for other loan programs, keep in mind if you received loan funds from EIDL greater than $25K, SBA will file liens on your business assets. Some lenders will not advance new loans if there are liens on your business assets.

Is it legal if you got EDIL if you show loss last year?

EIDL loans were meant to fund a financial hole in your business caused by economic disaster.  You are not ineligible if you showed a loss for the prior year. If you did have a loss, however, be prepared to show how you can repay the loan. When asked to support the EIDL loan you will need to explain and document what you lost due to the economic disaster caused by COVID-19.  For example, lost customers, forced full or partial shutdown, customers unable to pay you because of their economic impact, etc.

If you had a loss in the prior year(s) also be prepared to demonstrate the ability to repay the EIDL loan.  Explanations might include non-recurring losses in prior years, reduced expenses in the present, etc.

How do I apply and use PPP as a solopreneur when I don’t have traditional payroll costs?

If you are self-employed or a single-member LLC, you file a Schedule C, your net profit is considered owner’s payroll.  You qualify by taking line 31 of your Schedule C for 2019 – net profit – divide by 12, then multiply by 2.5.  If you also have employees, follow the payroll calculation, and add to your net profit and calculations.

As a sole proprietor, is there a max amount of money you can borrow?

The minimum is the amount shown on line 31 of your Schedule C federal tax return divided by 12 and multiplied by 2.5.  The maximum amount is $100,000 divided by 12 and multiplied by 2.5.  The math equates to a maximum of $20,833 using the $100,000 cap.

I already filed unemployment claims as a 1099 Consultant. What do I do if I now start receiving EIDL or PPP?

Compatibility varies from state to state depending on your state unemployment rules. For example, some states require a business to be “closed” to qualify for unemployment vs. EIDL & PPP which are to help businesses to stay open.

lf I receive a PPP loan, and I also then receive unemployment, can I use both for myself as a sole proprietor? How do we navigate these two programs?

Unemployment rules vary from state to state.  If you have received both, your state is compatible with unemployment and PPP.

There is no guidance yet that would require you to disclose or reduce forgiveness by any amount you received for unemployment.  But based on existing rules, keep an eye open for new rules that may impact you when you apply for forgiveness. Remember, you can treat PPP funds as a loan at 1% if it is not forgiven.


Should I be seeking a private loan for my business? What else should I be tapping into?

First, you need to have a strong handle on what your business strategy is. Read on to the Strategy section of the FAQ for more information and questions to ask yourself like – what do you need to spend money on? What resources you already have? What is the timeline to achieve your goal? Then the next step is finding a funding source. Every day more options are becoming available.

  • Local/state economic development groups
  • Individual forming funds
  • Large corporations who will support their supply chain of small businesses
  • Lenders who specialize in inventory
  • Lenders who understand and will fund accounts receivable and contracts.
    Establish how much funding you will need, how long you will need it, when you can pay it back and where the cash will come from to repay the funds if they are not a grant.

If I live in one state and my business is in another, which location should I search for a CFDI?

CDFI’s are assigned to serve local businesses within the counties they are assigned.  Since their mission is to fund businesses, look first to the CDFI who serves the state and county where your business is located.  This link to the CDFI finder will help you find the right CDFI: Find a CDFI Near You.

Are there tax credits my business should apply for as a result of COVID?

If you do not take a PPP loan but have been partially or fully shut down by state “shelter in place” regulations, you can apply for a refundable payroll tax credit up to $5,000 per employee.  You must have retained or resumed some payroll but can secure cash for the portion of the credit not needed to offset employer payroll taxes. Talk to your tax accountant about forms to use to apply for this tax credit.

Any advice for non-profit loans?

If you are a non-profit who received a PPP loan, you need to follow all the same rules for use of proceeds and forgiveness as for profits.

If you borrowed more than $2M, and have significant endowments or investments, have your financial team prepare you for the audit Treasury will conduct on all forgiveness applications greater than $2M.

Documents you may need would relate to endowment or investment funds that are “restricted” under the non-profit accounting definition and therefore not available for use to meet this crises.

If you are a small non-profit and have not applied, the program would be of value to you. Only apply if your board approves the potential for any unforgiven dollars to become a loan, and the crises is causing you economic hardship.

Is there a good rule of thumb or a good percentage of profits to allocate towards paying back accounts payable, past debt? 

Repaying debt should be planned as carefully as the recovery strategy.  The more profit that has to go to repay debt, the less profit you have to grow forward.  The more dependent you are on future sales to repay your debt the less nimble you will be if there is a second wave of virus restrictions or seismic shifts in market or supply chain access.  How much debt you should have is a very individual decision, based on the following:

  • Personal appetite for risk
  • Repeatability of the source of repayment (i.e. monthly contract revenue vs. new customers in a new untested market)
  • Margins

Is there a debt percentage or ratio a business should strive for?

A prudent rule used by most lenders is to have $1.25 available in cash flow for every $1.00 you have in principal and interest payments.

This is usually measured by looking at last year’s profit. Add back what are called non-cash expenses (depreciation, amortization) and interest expense to arrive at cash profit.

Divide cash profit by total principal and interest payments for the year.  If the answer is less than one, that means your operation is generating less cash than needed to make principal and interest payments.

Repaying debt should be planned as carefully as your recovery strategy. Keep in mind the more profit that has to go to repay debt, the less profit you have to grow forward.

How much should I request for a business loan? When is it prudent to do this?

Only request a loan amount that you can pay back either based on historic (pre-COVID-19) cash flow or on projected cash flow as the economy and your business recover.

Start with expected net profit and divide by 12. That is the absolute maximum payment you can afford.

Next look ahead – where will cash be tight?  For how long? What do you need the cash for? Then find a loan payment calculator app. Enter the amount of cash you need, use an interest rate from a Google search. The term of the loan will depend on what you are using it for. Use 12 or 24 months for working capital, 60 months for equipment, 120 months for a business acquisition or 300 months for real estate. If the calculator gives you a payment higher than your maximum, adjust loan amount until to bring payment in line.

If you cannot find a loan amount that fits the payment you can make, it is not a prudent time to request a loan.  It is instead a prudent time to review your business plan.

At what point should we consider bankruptcy? 

Chapter 7 bankruptcy for businesses is designed to close and liquidate a business with the bankruptcy laws determining how or if your creditors are paid.

Chapter 11 gives a business protection from creditors while it reorganizes.  The business’s intent is to exit Chapter 11 as a going concern; but keep in mind that the bankruptcy court will appoint a trustee to draft and execute the reorganization plan.

Use Chapter 7 or 11 if they become your only option.

How do you prioritize what’s best for the business at this time? 

Go back to your business plan. Who are your customers?  How will they find you?  How will they buy your product or service? How do you deliver your product or service?  Where do you source the product or service you sell?

What should I be spending money on?

Ask yourself these critical questions:

  1. What do you need to invest in to meet the current challenges? More inventory? Different inventory? Different delivery methods? More workers or less?  More online tools or more direct contact? More training?
  2. What do you have too much of? If you have too much inventory, look for ways to turn it into cash.  If you have too many staff members, don’t bring them all back.
  3. Are you seeking funds for what you need? For example, 8 weeks of payroll is not the answer if you need less staff and a smaller team.
  4. How can we get creative? Preparing for re-opening is knowing where the new business plan is different from “business as usual” and preparing for the modifications. This might be a price increase if maximum capacity rules prevent you from having enough customer volume to cover overhead.  It might mean negotiating with a landlord – maybe you could pay your rent if the landlord would pay for a drive-up window.  It might mean investing in software so you and your team can reach more clients with less travel.
  5. What else do you need to fund? PPP was based solely on payroll. Your plan may need to fund more than payroll expenses. PPP is not the only game in town, but other funding sources will want to see a plan and projected revenue and expense.  You should too! When you have answered questions above you will know how to proceed and what the timeline will look like to reach breakeven and then profitability. Your plan is your roadmap to prioritizing spending and other non-cash resources.

What should I consider before I start spending during a time like this?

Before you start spending, consider if those dollars or new investments will move your plan forward.  Remember, since cash follows profit, the inverse is also true.  So if you need cash, you need to be investing in profitable initiatives.  You need the projections discussed above to enable you to make decisions at each turn.

How can I ensure my business and strategy has sustainability and staying power?

The key to a sustainable financial business model is profit sufficient to meet three business demands:

  • Investing in new equipment, software, training, etc.
  • Working capital. Funding growth in your trading cycle [dollars held in A/R plus dollars held in Inventory less dollars from vendor credit]
  • Debt repayment.  If debt gets so big it overcomes investing and working capital, you stop growing and are 100% dependent on future sales with no capacity for hiccups in your business or the economy.

What are the best-practices for bookkeeping? Should I hire an accountant? Tax consultant?

In times like these, where cash is tight and market conditions change frequently, it is a priority to know your true profit monthly.  In most cases a business needs a bookkeeper to do the financial data entry correctly and a tax accountant to keep you in compliance with tax law. Also consider finding someone who can extrapolate the cash picture from data and advise on future cash and profit strategies based on historic trends and financial implications of new initiatives.

How do you attract new business during this time? How else can you increase revenue? 

First, do your research: Who is out there that needs your product or service? Why don’t they know about you? If they become a customer, can they pay? Will they pay enough to meet your target profit margin?  What other related product or service would this same group be interested in?  Can you deliver it at a profit?  Are there other markets you could reach with improved technology – i.e. on-line?

Before you hire a marketing/branding specialist, calculate what you can afford to spend on the marketing initiative. Then ask the prospective marketing company what the return on your investment will be (ROI). Be sure you have set your parameters for the size of the investment (dollars and time), the ROI you need to make it sustainable, and the profit margins you need to support your operation.

My business is booming despite COVID, how do I invest in growth without risking the company on the downside outcome?

If you determine the boom will continue when COVID fades, outline steps you need to take to maximize the advantage you have now and to continue growing.

Draft a financial plan to 1) the end of the year and 2) at least another 12 months beyond. Include these two critical components.

1.  Carefully calculate all the costs to deliver your product or service.  Determine which ones will increase with increased sales and when and which ones will remain flat or fixed.

2.  Plan for the cash you will need to support the growth.

The key to growing a sustainable financial business model is profit sufficient to meet three business demands:

  • Investing in new equipment, software, training, etc.
  • Working capital to fund growth in your trading cycle [dollars held in A/R plus dollars held in Inventory less dollars from vendor credit]
  • Debt repayment. If #3 surpasses #1 and #2, you stop growing and are 100% dependent on future sales.

Should I start a new business during the COVID-19 crisis?

Some of our most successful big companies were born during economic downturns.  Funding will be your toughest obstacle but not impossible since there are those who believe in startups – even in a COVID-19 crisis.

If you see a niche no one else is filling or you see a market demand you could meet better than the current providers or there is a unique opportunity created by the COVID crises – go for it!  You may be the next success story

If you are a company that has not utilized discounts in the past, would this be an appropriate time to begin that practice in order to incentivize clients to return?

Discounts have a direct impact on profit margins.  Profit margins have a direct impact on cash.  Coming out of this crisis cash is a precious commodity.  If you have a cash reserve, you can invest in giving discounts – i.e. reducing your profit & cash balances. Offering a discount now could give you an advantage against your competition.

If your profit margins are already tight and cash is tight discounts will only tighten both.  Keep in mind many of your competitors may offer discounts and not survive into 2021.  Or, they may not survive the COVID-19 crisis at all.  Less competition means customers will return and new ones will find you because they have less choices, not because you offered a discount.

As cities and states begin to reopen, what should I be focused on?

This is the biggest question I’m getting this week. Reopening has been uneven.  All good decisions have a strong financial underpinning.  Turn your focus on your business.  Where are your customers coming from? Are you making money on their purchases? Covering your overhead cost?  Where are your new opportunities?  What will it cost to get there?  What new costs have been added for PPE, protective barriers, sanitization?

Putting all this on paper is called a financial projection.  Start with the costs.  For each sale, what is the cost for raw material? Labor? Etc. Sales minus these variable costs equals gross profit – or cash to pay for overhead.

For example,  if you make $5 on every sale, divide your overhead costs by $5 and you’ll know how many sales units it will take to cover overhead.  That takes you to breakeven. Now look forward––adjust gross profit, overhead expense and number of units you think you can sell.

Once you have answered the “now what?” for your business you’re ready to see where you fit in the swirl of events around you.

Will there be government aid and support to provide PPE equipment?

To date the only discussion for government aid to cover the cost of PPE is for nursing homes and senior living communities.

What do I do if my business is open but my suppliers are in states that are still closed?

If they are not available to function as a vendor, you will likely have to either stop providing the product or service they make possible or find a new vendor. The loss of a vendor may or may not be damaging. 

Take this time to assess if the product or service they provided really added to your profitability.  It may be time to prune unproductive or uncooperative vendors.

If working with a new supplier,  be prepared to pay COD (Cost on Delivery) or in advance if they don’t offer terms.

What do I do if my employees get sick? Is there a liability I assume?

Find good resources to consult on labor law, especially illness in the workplace.  This has always been a complex area for small business to navigate and the COVID-19 crises and related legislation and regulation have made it even more complex.  Spending a few hundred dollars on a quality HR professional could save you thousands in unnecessary expenses, fines, or litigation.

Do you have any advice for obtaining any PPE equipment when opening? Other tips for keeping my team and customers safe?

It is imporant to consider how or where you are going to find funds to cover the financial side of PPE, protective barriers and sanitization. Sourcing the products needed is another problem to solve.

Many states have stepped up to assist small business with both.  Check your state’s website. Some are helping provide products, some are helping with funds to pay for products, others are offering consulting.

Boston is offering assistance to determine what a business needs and where to get it.
Rhode Island is offering masks, disinfectant, etc.
Pennsylvania has set up a loan fund for small business’ needs the federal government programs are not covering. 

What should I do if my business is struggling to pay rent?

Have a plan for what you can pay and when you can pay it.  Share your re-opening and return to sustainability plan with your landlord and ask them to partner with you.  It’s likely your landlord is also worried about having an empty building as well as paying their own bills.  Cooperation could even lead to concessions on both sides if done with a plan.

We are having trouble with our suppliers and securing receivables. What should we do?

If you are struggling to pay your suppliers and you have a solid recovery plan, share it with them. Like you, they want to keep their customers, and if they can give you terms, they will.

Larger companies, if asked, may be more responsive than you might expect.  Some have even set up loan funds to help their smaller customers.

Also remember, loss of a vendor may or may not be damaging.  Take this time to assess if the product or service they provided really added to your profitability. 

For receivables, offer terms to clients/customers that are likely to rebound and continue to need your products or services.

For clients/customers you think are in industries that will struggle and may not fully recover, offer them a discount to pay in full.

If you have financially strong customers who usually have good repayment history, consider selling the receivable if you need cash now and using it moves you forward to profitable sales.  Learn more about factoring by looking for companies who are already active in your industry or by talking to financial brokers you trust.

How should I be managing my receivables?

Review your receivables. Offer a discount to pay in full for those you think are in industries that will struggle and may not fully recover

Offer terms to the clients or customers that are likely to rebound and continue to need your products or services.  If you have financially strong customers who usually have good repayment history consider selling the receivable. Learn more about factoring and talk to financial brokers you trust.

Are there guidelines for setting pricing?

Pricing is the result of two sets of guidelines.

First, calculate your Cost of Goods Sold, or COGS: The all-inclusive cost should include raw material, item purchased, labor to make/handle/ship, shipping, packaging, merchandising, other direct costs that produce the good or service.

Next, calculate your overhead, or OVH: The collective costs of fixed expenses like rent, utilities, insurance, administrative labor, sales staff, etc.

COGS + OVH + target profit margin = minimum selling price.

The second set of guidelines will come from your marketing team who will advise on what the market will pay for your product or service.  Market price should be greater than minimum selling price.  If market price is less than minimum selling price, revisit your COGS/OVH/Profit to calculate what can change.

Should I be dipping into my personal savings to keep the business afloat?

Entrepreneurs always use their own money first.  But first, review your recovery plan. If there are parts that fit PPP or EIDL or a local or state recovery program, apply.

Reserve your savings for two things: the part of the plan no one is offering assistance with and as a fall back in case one of your assumptions falls through. 

Are there common mistakes I should avoid for personal finances and my business?

In a fast-paced world, the easiest mistake to make is paying for costs out of wherever the cash is. 

Be sure your personal finances are personal and if the business is the source of funds to pay them, use conventional methods like payroll, distribution or loan to the owner.

Book all business revenue to the business, including cash. Book all business expenses to the business.  If you keep the two consistently separate, with good record-keeping, a tax professional can assist you at the end of the year with sound strategies to employ appropriate tax rules to reduce taxable income to both you and the business.

Do you recommend starting a business if you have bad personal finance history?

Starting a business may be your plan to restore a positive personal financial picture.  The tools you will need to be a successful entrepreneur will depend on the reasons for the negative impact on your financial history.  If you have a track record of spending more than you earn, you need to start with a personal financial course to master the basics of cash inflow exceeding cash outflow.

Owning a business requires discipline, as you often receive money in the moment for business expenses in the future.  You will need a different tool set if you have been negatively impacted by one-time events – like an illness or divorce or loss of a job.  Most lenders will wait to work with you until you can recover your financial strength.

There are excellent resources for you, however, in local economic development agencies who offer micro-loans.  Their programs are built around giving you guidance (technical assistance) on business practices, financial tools and small loans when and if you need them.  These are usually at minimal or no cost.  Search under “micro-loan programs.” Be sure the one you select also offers “technical assistance.”

COGS
Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. Selling, general and administrative costs are not included in the cost of goods sold; instead, they are charged to expense as incurred.

Debt Factoring
A financial arrangement in which a factoring company takes responsibility for collecting money relating to a business’s invoices, and immediately pays that business part of the total amount owed on the invoices.

FTE
Full-time equivalent (not full-time employee). FTE translates the total hours worked by part-time employees into the number of equivalent full-time employees. Tracking FTE is a typical way employers monitor employees’ workloads so future budgeting and staffing can be properly planned for. To calculate FTE you have to know how many full-time and part-time employees you have, and the average number of hours they work. You can then determine the equivalent number of full-time workers you employ.

Net Worth
Value of the assets a person or corporation owns, minus the liabilities they owe. It is an important metric to gauge a company’s health and it provides a snapshot of the firm’s current financial position.

Overhead
Refers to the ongoing business expenses not directly attributed to creating a product or service. It is important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit. In short, overhead is any expense incurred to support the business while not being directly related to a specific product or service.

Profit Margin
Represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale. For instance, if a business reports that it achieved a 35% profit margin during the last quarter, it means that it had a net income of $0.35 for each dollar of sales generated.

ROI – Return On Investment 
Performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.

Working Capital
The amount of money a company has on hand, or will have, in a given year. Working capital is calculated by subtracting current liabilities from current assets. That is, one takes the value of all debts and obligations for the current year and subtracts that from the value of all cash and assets that might reasonably be converted into cash in the current year. Working capital is also called operating assets or net current assets.

To learn more, sign up for our weekly webinar series: Helping Small Businesses Navigate COVID-19.

Marilyn Landis

About the Author


Marilyn Landis


Marilyn D. Landis is the President & CEO of Basic Business Concepts, Inc., a multifaceted service firm providing the support to keep businesses financially balanced, on track and growing. “We provide entrepreneurs access to affordable CFO-level skills that are customized to their unique business” The CFO focuses on strategy and risk and is the forward thinking financial resource to the management team. In this role, Landis has over fifteen years of experience working with small businesses across all industries nationwide, providing financial CFO leadership. Directly, and with her team, she has enabled clients to improve their financial resilience through sound financial planning, improved financial reporting, enhanced cash flow management and improved funding options. Landis has over thirty years of experience in financial services. Prior to focusing on her own business she worked for and with commercial lenders, banks and small businesses throughout Western Pennsylvania. In her career, she has served as a financial consultant; headed training, consumer loans and mortgage departments; collected delinquent loans; and coordinated operations for a multi-bank merger. Marilyn has worked for three of the largest SBA lenders in the country – marketing, originating and underwriting SBA loans. September of 2007, Landis was elected chair of SMC Business Councils, a founding member and Pennsylvania affiliate of the National Small Business Association (NSBA) in Washington DC. January of 2008, she was elected the 2008 chair of NSBA, who since its founding in 1937, has advocated on behalf of America’s entrepreneurs, reaching more than 150,000 small businesses. NSBA is proud to be the first national small-business advocacy organization in the United States. Representing SMC and NSBA member businesses, Landis has testified before US Senate and House committees on issues vital to small business. March of 2009, Landis was awarded The SBA National Financial Services Champion of the Year. August of 2010, she was appointed to the Office of the National Ombudsman Regulatory and Fairness Board and continues to serve. Landis also has extensive Board level experience with nonprofits, ranging from non- profit economic development and social services agencies to for-profit manufacturers.