COVID-19 has had an unprecedented impact on all aspects of American businesses, but perhaps none have been as severely affected as small business owners. Surviving this disaster will require more than just time: you will need to take a pragmatic view of what has happened and what steps you are willing and able to take in order to bounce back. Here are our suggestions: 1. Spending Take a hard look at what you’re spending now and what you were spending before to determine what can be eliminated. Efficient spending is going to make a real difference in your business’ ability to survive this crisis. That means you need to look at what you’re spending now, while you’re cutting expenses to the bone, as well as what you were spending before. If you can break your expenditures down into what is necessary versus what can be eliminated, you’ll be able to cut out a lot of the fat and give yourself a cash flow advantage. Perhaps you’ll find that you no longer need the same amount of physical space if you are comfortable with having workers telecommuting. That single example can lead to savings in electricity and other services that can boost your ability to cut expenses. Your goal is to run as lean an operation as possible, but to do so without having your cuts impact your ability to provide the service that your clients expect and want. 2. Agility Examine how the shifts that the pandemic has forced can be incorporated into your business in a more sustained way. Plenty of companies have shown tremendous flexibility and nimbleness in the way that they deliver their products or services, or even in the products themselves. Every business’ success is based on what the market needs, so business owners who can assess how the pandemic’s unique dynamics can be used to their advantage, or how they can adjust to them, will be the ones that are most successful and most likely to survive. 3. Competitive Inspiration If you’re stuck for what to do to transform your business, there is absolutely nothing wrong with looking to your competition for inspiration. Perhaps they’ve moved their in-store shopping experience to one that is entirely available online, or they’re providing a new way to use an old product. Maybe they aren’t able to open but are remaining engaged with customers via webinars, podcasts, live sessions on Facebook or Instagram. Whatever is working for one company, whether in your industry or not, can serve as inspiration for you. 4. Reflecting How are you spending your time through the pandemic? Are you just worrying about how your business has suffered, or are there things that you’ve wanted to do for quite some time but have put off until you had a moment to spare? Perhaps most importantly, it’s a good time to reflect on whether you’re actually enjoying yourself as much as you thought you would when you first started your own business, and whether the whole endeavor is actually worth it. Are you making the money you thought you would? Are you enjoying it as much as you thought you would? Has it provided the quality of life that you anticipated? Or would you be better off doing something else? It makes perfect sense to take this forced time off to reassess and either confirm or deny whether you should keep moving forward or turn to something else. 5. Planning Take a longer view of your business than what is demanded by the immediate moment. There are some businesses that will be able to return to normal, but that is not true of all of them, and taking a clear-eyed look at how consumers are going to look at spending money with your type of business in the future is time well spent. If your business is essentially dependent upon having lots of people gathered in a small space, then you have to think beyond getting back to work and, instead, spend time thinking about the changes you’re going to have to make to allow yourself to stay in business. You may fail to do this, but you’re likely to find that your competition hasn’t, and that will not only put them one step ahead of you but may leave you selling in a way that your customers are no longer willing to engage with. 6. Learning If your business operations have slowed or come to a stop as a result of the pandemic, one of the smartest things you can do is to use the time to expand your own knowledge and education. There are seemingly limitless courses that you can take online – both free and fee-based – as well as books you can read to make sure that you have sharpened your abilities and expanded your knowledge of your business and industry. The social distancing that has been required by both the government and the medical authorities gives you the opportunity to boost your abilities and expertise, whether by reading about your own industry or by taking cues from successful people in other industries. You can find inspiration from innovators and great thinkers both current and classical. There is a lot more to be gained from the down time offered by the pandemic than thinking about your inventory and your clients. Use the time to improve yourself and it will provide a broad advantage within this business and those you may be involved with in the future. 7. Taking Care Perhaps most important of all, stay healthy and stay positive. If you have extra time that you would have been spending on your business, take the time to make sure that you are taking care of yourself, the people you love, and the people in your community. We are living through history, and at some point in the future you are going to look back and assess how you spent your time in lockdown. Whether it’s in reference to your business or your personal life, work towards a resilient response that you can be proud of, and that hopefully will advance your business beyond this temporary setback. If you have additional questions about how to keep your business going during COVID-19, feel free to contact our office.

In the face of the global pandemic and the subsequent economic crisis it has spurred, the federal government has taken several steps to protect small business owners. One of the most notable of these steps is the offering of Paycheck Protection Program (PPP) loans, which are being trumpeted as forgivable loans. Though the loans are indeed forgivable, the requirements for forgiveness are not as broad as many borrowers originally thought. Requirements for PPP Loan Forgiveness At first glance, the qualifications for a loan to be forgivable are fairly simple. A minimum of 75% of whatever amount is borrowed must be used to cover payroll, though up to the remaining 25% of the loan can then be used on other specific expenses incurred or viewed as a liability prior to the crisis unfolding. Those other qualified expenses included mortgage interest, utilities and rent. Though the details above are correct, what was not immediately understood by those seeking the loans was that there is an additional requirement that may be present more of a challenge. In order for the loan to be fully forgivable the business must end the pandemic period with the same number of employees as they began with — even if they are using 75% of the loan to pay workers, if a business doesn’t end the pandemic with the same number of employees as they had before the crisis hit then the forgivable portion of their loan will be modified. To understand the effect that this additional restriction has on a small business and its PPP loan, consider a company that had employed 20 workers before the virus first struck the United States. The business takes out a loan and uses 75% of it for payroll expenses, but at the end of the pandemic they have only retained or rehired 12 of their employees. This would result in only 60% of the expenses being eligible to be forgivable. If, on the other hand, the business had either kept their staff to 20 employees or rehired staff to bring them back up to 20 after the crisis had passed, then their loan could be fully forgiven. Though it is understandable that a program that is specifically identified as a Paycheck Protection Program would have this type of requirement, that doesn’t make the issue any less tenable for companies whose businesses have been hard hit by the virus. If there are no customers or no demand, then retaining or rehiring employees makes little sense. Calculating Your Forgiveness Equation If you have taken out a PPP loan or are considering doing so and want more information on the considerations involved in the forgiveness equation, the most important information for you to be aware of is the time period that the government will use to assess the number of employees you had pre-pandemic. There will be two time periods used: either January 1, 2020 to February 29, 2020 or February 15, 2019 to June 30, 2019. Smart employers who have had to cut back on their number of employees will take the time to analyze their employment records to determine when they had a smaller number of full-time equivalent employees. For an even more detailed example of how the PPP loan forgiveness program will be calculated, let’s look at the calculations involved in a $100,000 loan taken out by a company that had 20 full-time equivalent employees prior to the crisis. When the company’s 8-week loan period comes to an end, they are no longer able to support ten employees and have cut back to 12. Using this example, let’s go through both the 75% Payroll Cost Rule and the Full-time Equivalent Employee Rule to see what amounts a small business borrower would be eligible to have forgiven. If the company spent a total of $60,000 on payroll and another $12,000 on rent and utilities, that would bring their total amount spent up to $72,000. The first step in determining qualifying expenses is to calculate what percentage of the total qualifying amount went to payroll. In this case $60,000 represents 83% of the $72,000 in expenses that qualify, so it exceeds the 75% threshold and fully qualifies for forgiveness. However, under the adjacent full-time equivalent employee rule that is part of the program, the government will also compare how many full-time equivalent employees the business had before the pandemic to the number on staff after. If their pre-pandemic staffing level was 20 full-time equivalent employees but after the 8-week period they only had retained 12 full-time employees, then the amount eligible to be forgiven will be reduced by the same ratio as that of their reduction in full-time equivalent staffing. The total loan spend of $72,000 will be multiplied by 60%, leaving them with only $43,200 qualifying as forgivable. Carrying the calculation to its logical conclusion, the original $100,000 PPP loan that paid out $72,000 in qualifying expenses (including 83% of qualifying expenses being dedicated to payroll) will only be able to have $43,200 forgiven because they only retained or rehired 60% of their pre-pandemic staffing level. The balance of their loan – $56,800 – will need to be repaid within two years at an interest rate of 1%. The same calculation is done if the same number of employees are retained or rehired, but their compensation is reduced by more than 25%. It is important to remember when doing these calculations that in the event that the business’ non-payroll expenses go beyond the allowable 25%, that also reduces the forgiveness of the borrowed money. The amount that can be forgiven will be reduced until the ratio reaches the required levels and non-qualifying expenses represent no more than 25% of the total. Understanding the Pros and Cons of PPP Loans Though small business owners had looked to the PPP program as something of a lifeline, they also need to remember that this particular program was specifically meant to incentivize them to retain their employees – that is why it was called the Paycheck Protection Program. It can be disappointing or even upsetting to be penalized for not being able to bring back all of your employees, especially when there are some employees who would rather not come back because the unemployment compensation that they are receiving may be greater than the amount that they were originally being paid. Of course, there is also the matter of whether there is work for those employees. Does it make sense to bring back workers and pay them when there is no work to justify doing so? According to Regional SBA Administrator Robert Scott, the Small Business Association is hamstringed by the language included in the CARES Act and must comply by the rules that Congress has imposed. There is a potential lifeline for businesses that were forced to cut their employment levels during the worst weeks of the pandemic: if the economy reopens and they are able to bring back their original pre-pandemic contingency of workers by June 30, 2020, the forgiveness reduction will be eliminated. Whether that is doable or not is another question, and one that the SBA and Treasury are likely to review as the situation progresses. If you have any questions, please contact this office. We are here to help you make a plan for achieving forgiveness of your PPP loan.

On April 30th, the IRS released guidance announcing that expenses related to Paycheck Protection Program (PPP) forgivable loans will not be tax-deductible. The PPP was originally created as part of the CARES Act, a $2.2 trillion coronavirus relief bill. The program provides low-interest loans to small businesses that will be forgivable as long as the funds go are used for “essential” expenses like maintaining payroll. The initial appropriation of $349 billion ran out quickly, and a second-round was passed as part of the PPP & HCE Act, providing $310 billion in additional funds. Usually, wages would be deductible expenses for employers, and forgiven debt would count as taxable income. Under the coronavirus relief packages, however, PPP loan forgiveness will not count as taxable income. That being said, the IRS guidance states that expenses that result in forgiveness of a PPP loan are not tax-deductible in order to prevent a “double tax benefit.” If they decide to take action on this topic, Congress could override the IRS’s guidance by passing a law that would explicitly allow the deductions. We will continue to keep you updated on the latest IRS guidance and other PPP news and legislation. Please contact us if you have any questions.