Your business received the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). You have used the PPP funds and your EIDL is running low. Now what? As we move into this new normal, your business will need to have the flexibility to adapt and change swiftly.
Easier said than done, right? It is true that we are facing unprecedented times right now. The good news is that times like these force us out of our comfort zones and help us become creative. Below are a few of the options you may take to help your business through these trying times:
- Offer a product you have never offered before on a platform you have never used. Now is the time to try anything and everything.
- Review your current need for leased space and reduce it if possible. If not possible, negotiate some rent concessions with the landlord. Don’t be afraid to ask. All of their tenants are in the same boat.
- Review your staff needs and determine if there are any redundant positions you could eliminate. If you are outside the PPP eight week or selected 24 week period, this should not affect the forgivable portion of your PPP proceeds (check with your lender first). Your accountant and payroll firm will be able to assist you in making the PPP forgiveness calculations.
- If you received the PPP, most lenders are beginning to accept the application for forgiveness. If you have not heard from your lender, reach out ASAP to find out what documents you will need to supply and which application is best for you. There are the 3508EZ and the regular 3508.
There is a caveat to the PPP loan and taxation, which will require some planning. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides that the debt discharge of a PPP loan is excluded from the gross income of the business for federal income tax purposes. Forgiveness is limited, based on the payment of qualifying expenses and the maintenance of employee count and compensation. Businesses shouldn’t assume full exclusion from taxable income, however.
On April 30, 2020, the IRS issued Notice 2020-32, which provides that borrowers cannot deduct otherwise deductible expenses that they paid using funds from a PPP loan that was subsequently forgiven. In effect, the IRS eliminated the tax benefit of PPP loan forgiveness. Several bills have been submitted in Congress to overturn the effect of the IRS notice. In addition, the American Institute of CPAs (AICPA) is on record supporting legislation to allow deductions for the qualifying costs.
As of today, this means that anything you paid for using the PPP funds that would typically be an expense and deduction from income will not be allowed to be deducted. In essence, you must reduce expenses by the amount of the PPP forgiven. This could mean additional taxable income to your company, and possibly you personally, depending on your tax structure. Speak to your tax preparer today to make sure you are ready for how this may affect you.
- Tap in to new technology so that you can still offer your service or product remotely. Zoom, Webex, and GoToMeeting are all good options that allow you to connect with your clients.
- Streamline your workflows so that you can work more efficiently and possibly service more clients under the new operating method.
- Sell any assets sitting on the books that are no longer helping you with your line of work. For example, did you have a fleet of trucks for deliveries, but your deliveries are cut in half? Get rid of idle assets, especially those that were financed and have a monthly payment. You can always replace them later.
- Review your profit and loss and determine if there are further expenses you can cut to reduce your monthly cash outlay. Cancel any items that were on auto-pay that you no longer need. Review your contracts for things like credit card processing, IT support, etc., and possibly negotiate new rates.
- Surround yourself with like-minded people (virtually, of course). Bounce ideas off other small business owners and use any of their good ideas for yourself. Now can feel isolating, but it is really the time to reach out and network and help each other.
Hang in there. This too shall pass. Don’t feel deflated thinking you are alone. So many small business owners are in the same boat. If you are at a loss for how to manage, please reach out to an accounting professional who can give you guidance and help you figure out your next move. You can survive this!