Now that countries around the world have stimulus packages in place, what is the best use of that money and opportunity?
In the United States, our government passed two packages in the past month. Your head may be spinning with the best course of action for your business. I have some suggestions. But first, allow me to offer a quick glossary of terms:
FFCRA – Families First Coronavirus Response Act – passed March 18, provides paid sick and family leave for your employees for up to 80 hours.
CARES Act – Coronavirus Aid, Relief, and Economic Security Act, passed March 27, 2020 to maintain businesses and workers.
PPP – Paycheck Protection Program – included with the CARES Act, provides forgivable loans to cover payroll expenses and other necessary business expenses.
EIDL – Economic Injury Disaster Loan – included with the CARES Act and provides immediate relief for payroll and business expenses. You can apply for this today at: https://covid19relief.sba.gov/#/
Prepare Documentation for Loans
Regardless of which program you choose to help your business, your company finances will need to be in order. Some loans will require documentation prior to offering a loan, others will require documentation after you use the funds. This article is to help you prepare. Contact your favorite banker and place them on notice that you want to apply for relief. They may be able to give you a list of documentation they will require. If not, use mine.
You will need proof of expenses, so your accounting system must be in order. If it is not, you have a small window of opportunity to get it ready while the SBA, states, and other agencies build guidelines in the coming weeks.
You will need to provide proof of payroll from 2019. The number of employees, the average monthly payroll cost, and average monthly payroll taxes for three months between February 15, 2019 and June 30, 2019.
You will need tax returns for the past two years. If you have not yet filed your tax returns, do so as quickly as possible. Additionally, you will need to provide support for rent payments, mortgage payments, and utility payments. Start now so you are ready when the banks are ready to help you.
Begin Tracking COVID-19 Expenses
Consider creating a bucket of expenses in your accounting system to track all expenses related to COVID-19. In this bucket, you should have some subaccounts:
- Employee Sick Leave
- Employee Family Leave
- Salaries and wages
- Payroll taxes
- Health insurance premiums
- Rent/Mortgage interest payments
- MSP Tools
You will need to separately track your payroll for COVID-19, especially if you obtain a PPP loan. Additionally, the FFCRA requires a separation for paid sick and family leave. These two items will be treated differently for the tax credits. Use your PSA or whatever time tracking system you use to manage this. Create a code for C-19 Sick/FML. This will help you obtain the proper credits for wage reimbursement un FFCRA. Create another code to track worked hours during the covered periods for PPP and EIDL. You will need to support your claims if you plan to apply for loan forgiveness.
Speaking of loan forgiveness, do not apply for these loans with the expectation they will be forgiven. Expect to pay them back and be pleasantly surprised if you later do not have to. This is not guaranteed free money.
The remaining expenses are self-explanatory, except for the MSP Tools. Many MSPs are helping their customers move employees to home-based work. This may include the offering of RMM seats, anti-virus, web security, and other tools you will use to keep them secure and patched. If you are not charging your customer for those extra seats as a gesture of goodwill, or even expectation, place those costs here. You may also want to track any internal expenses your company incurs in a separate expense account. At the end of this year, you should have a very clear picture of how much COVID-19 cost your business.
Develop a Strategy
The best course of action is to develop a strategy for using these funds. Consider creating a separate bank account for the money and use it for its intended purposes. For the PPP loan, your company expenses will be analyzed for the eight-week period following the loan origination date. The dollars you spend on payroll, utilities, rent, or mortgage interest will be added together for the forgiveness total.
Any remaining amounts of loan that were not used for those purposes will enter into a repayment schedule. However, if your company lays off employees, who make less than $100,000, during that eight-week period, the loan forgiveness will be reduced by the amount of the pay cut. If you have employees that you are considering letting go, do so before obtaining the loan so they will not interfere with your program.
While the PPP loan is paying your business-critical expenses, consider using the money you would have spent on payroll and rent to aggressively pay down existing debt, or increase marketing.
Develop a system for marking expenses for COVID to get them entered properly.
Meet with your accounting team and accounting professionals to build a plan that will use this money to keep your company running efficiently in the coming months. Develop a budget to only spend where necessary. Keep your eye on the budget and do everything you can to stay within it.
Stay safe. Stay healthy. Stay sane.