By Nick Strain, CFP®, CPWA®, AIF®, Senior Wealth Advisor at Halbert Hargrove
You can’t control the pandemic or the economy, but you can control your business’s actions. Focus on these three areas.
The current pandemic is creating significant financial devastation. For business owners and leaders, it’s important to focus on what we can control – the actions we take and how we lead our companies. I’ll break these topics down into three categories: people, finances and government resources.
1. People
If you’re self-employed
It’s vital right now to remain connected to vendors, customers and organizations in your supply chain. Keep communicating with your industry relationships – and competitors. In this time of isolation and uncertainty, it’s best to receive information from many sources. Knowing all of your options and how to navigate them is critical. Don’t hesitate to ask for updates, help and guidance.
If you lead a company
Frequent communications with your internal staff to provide updates and ask for feedback will both keep you informed and help keep your operations on course. If you were having weekly team meetings prior to this crisis, you might consider holding virtual meetings two or three times a week – or more often as needed, particularly if your team is working remotely. You might encourage teams within your company to meet virtually once a day to touch base on priorities and crucial tasks for the day.
In times of stress like this, it’s easy to lose sight of humor. But injecting some humor and lightness into your organizational culture can’t hurt in easing burdens. Most importantly, touch base with your employees on a personal basis: Each is likely experiencing this crisis differently, depending on how it has affected their family and friends. Your support and appreciation for their contributions to your company could be invaluable to them right now.
If you’re forced to make the difficult decision to lay people off, it’s best to do so before you absolutely need to. This may sound counterintuitive, but laying off a group of employees all at once will have less of an impact on the morale of those who remain than laying off one person at a time. Prolonged and incremental layoffs will likely create anxiety and fear amongst your workforce. It’s also important to keep your high performers – even if they’re the most highly compensated. They’ll help to create stability for your company, keep your customers informed, and be ready to move into overdrive once the recovery begins.
Customer relations
Engage directly with your customers to keep them updated in various ways, such as through direct and frequent calls, emails, and videos. Calling customers directly, where appropriate, will maintain a personal connection and uncover unmet needs your company should address. Don’t be afraid to go beyond your normal level of service to be helpful, even if it doesn’t create additional revenue. Customers will remember your consideration and responsiveness for years to come – and you also might uncover a new service to deliver in the future. [Read related article: How to Communicate With Your Customers During the Coronavirus]
2. Finances
The pandemic is placing varying levels of financial stress on all industries. Small business owners, in particular, should be proactive in meeting with their internal finance staff, CPAs and financial consultants to understand their company finances and look for ways to decrease costs during the crisis. This includes envisioning worst-case scenarios to determine what actions you would take.
You should also remain in communication with your bank, vendors and supply chain to understand the impacts on each relationship. Knowing your options is essential to making smart financial decisions.
Here are some suggestions for short-term cuts:
- Review all large expenses to see if you are paying for any services or subscriptions that you aren’t using now.
- Temporarily reduce bonuses, salaries and nonessential benefit programs.
- Review your company’s retirement plans to determine if changes can be made to reduce costs, such as reductions in the employee match. If you offer a cash balance or defined benefit plan, you should consider freezing it if you expect your company’s net income to be greatly affected in 2020. Reach out to your retirement plan provider or pension consultant to discuss your options before the end of April.
3. Government resources
The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed by President Donald Trump on March 27, designating many resources for small businesses.
Federal and local governments learned from the 2008 financial crisis: They are providing more resources and lending programs, more quickly, to businesses and families. I’ve outlined four provisions of the stimulus bill for small businesses. Be sure to remain informed about what state, county and municipal resources are available to you and your business. Work with your internal finance team and CPA to verify what provisions you can and should use to navigate this crisis and to leverage all resources available to your company.
Paycheck Protection Program
The U.S. Small Business Administration (SBA) already offered a spate of loan resources and guidance to small businesses. Now, under the CARES Act, a provision called the Paycheck Protection Program provides an attractive loan for small businesses that can be forgiven if they meet requirements. To qualify, a business must have fewer than 500 employees and to have been affected by the economic conditions caused by COVID-19.
Qualified small businesses can receive a loan that equals the lesser of $10 million, or the sum of 2.5 times the average monthly payroll costs of the previous year (excluding employee compensation in excess of $100,000 a year), and the outstanding amount of an Economic Injury Disaster Loan from between Jan. 31 and April 3, 2020 (excluding the amount of any “advance” under a COVID-19 Economic Injury Disaster Loan).
The loan has a maximum term of 10 years, but SBA guidelines establish the loan term as two years. The proceeds must go toward payroll costs (as defined in the calculation of the loan amount), group health insurance premiums or other healthcare costs, rent or mortgage interest, utilities, or interest payments on any other debt obligations the business incurred before Feb. 15, 2020.
The loan may be forgiven under certain conditions. Proceeds the business used over the eight weeks following the date of the loan for payroll costs, mortgage interest, rent and utilities are eligible for forgiveness. However, to avoid a reduced amount, you must have the same average number of full-time employees per month during the eight-week period as you did either from Feb. 15 to June 30 of last year or from Jan. 1 to Feb. 29 of this year. Also, you must not have reduced compensation for employees who make under $100,000 by more than 25% (from the most recent quarter) during those eight weeks. The SBA stipulates that at least 75% of the forgiveness amount be used for payroll costs.
The Treasury Department, in coordination with SBA lenders, is still working out the policies and processes for this SBA loan. Small businesses should contact their banks to inquire and complete the application process by the June 30 deadline.
Other SBA loans
In case your business doesn’t meet these requirements or the loan doesn’t suit your needs, the SBA offers several other loan programs, the quickest being the Express Loan Program. The Express Loan provides up to $350,000 for up to a seven-year term, with a turnaround time of 36 hours for approval or denial of a completed application. The 7(a) Loan Program offers loan amounts of up to $5 million for eligible small businesses. The SBA also provides health guidance to small business owners and up-to-date information on COVID-19.
Employee Retention Credit
The Employee Retention Credit is a federal tax credit against the employer’s portion of Social Security tax for wages paid from March 13 through Dec. 31, 2020. It applies to companies whose operations were partially or fully suspended due to COVID-19, or whose gross receipts declined by more than 50% from the same quarter in the prior year. The tax credit is equal to 50% of the first $10,000 in qualified wages (including health benefits) paid to each employee up to a maximum of $5,000 per employee. The payroll tax credit is available to employers on a quarterly basis if they meet the eligibility requirements. Employers will need to pay for the benefits and then later be reimbursed by the IRS. There are nuances to this credit, so it will be important to work closely with your CPA.
Deferral of payroll taxes
As an employer, you can defer your 2020 payroll taxes, with 50% due by Dec. 31, 2021, and 50% due on Dec. 31, 2022. This applies to self-employed individuals as well as small businesses. It will be important to work with your CPA to discuss your options and create a plan to save the funds to make these payments in 2021 and 2022.
Tax extensions
The deadline for filing and paying income taxes to the IRS has been extended to July 15, but you can still file early if you expect to receive a refund. If you live and/or conduct business in California, the state tax deadline and payment have been extended to July 15.
The importance of partnerships and expert input
As I discussed at the outset, it’s important to focus on what you can control. If you pay attention to the factors that will get you through this crisis, you’ll be better poised to thrive in the eventual economic recovery period. Your attention to people within your organization, as well as your relationships with your customers and industry partners, can help you on the road ahead. Your internal finance team and your CPA are critical resources in determining if and where you can trim overhead.
Finally, the CARES Act offers a massive helping hand to get small businesses through the current crisis. Other government aid is available as well. Schedule a call with your CPA to discuss what your business qualifies for and what you can utilize to your advantage.
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