The U.S Small Business Administration (SBA) announced changes to the Economic Injury Disaster Loan (EIDL) program. Effective September 8, 2021, small businesses can apply for support until December 31 or deplete the available funds. Furthermore, small businesses can borrow up to $2 million and update existing funds to cope with COVID-related financial disruptions.
What Are The Key Changes To the EIDL Program?
The SBA released the Interim Final Rule to implement the changes to the Disaster Loan Program. These changes apply to all applications submitted on or after September 8 or COVID EIDL applications submitted before but approved on or after September 8.
The loan cap has been increased: The SBA has increased the loan cap from $500,000 to $2 million. Businesses that also applied for a loan before the changes can also apply for a loan increase. In addition, businesses under a single corporate group can apply for up to $10 million.
Interest: The interest rate for for-profit small businesses is 3.75% and 2.75% for nonprofit organizations over 30 years.
Amortization: While the amortization period is fixed, businesses can now defer payments for the first 24 months from the original closing date. During this period, interest and payments shall accrue. The borrower shall then make loan prepayments over the next 28 years. Fortunately, there are no prepayment fees or penalties.
Use of funds: The SBA has expanded the use of funds for expenditures and debts. For example, working capital, rent, maintenance, commercial debt, federal business debt, cards, payroll, and healthcare benefits. However, small businesses cannot use the funds to expand their business.
Amount: For businesses requesting $500,000 or less, the SBA considers if the business was operational before January 2019. In its calculation, the SBA considers double the business’s 2019 gross revenue and subtracts the cost of goods in 2019 to find the loan amount.
For loans above $500,000, the SBA will calculate the loan amount and conduct a cash flow analysis.
Exclusivity Period: From September 8, 2021, the SBA started accepting loan applications. Loan approvals are underway for loans below $500,000. Other loans will be disbursed from October 8, 2021. The thirty-day exclusivity period (September 8 to October 8) ensures that the smallest businesses access relief first.
The SBA is also optimistic about reviewing loan applications above $500,000 within six weeks to expedite the fund distribution. Businesses can also apply for extra fund amounts, but they should prepare for a long waiting period, approximately nine months, if the first loan is below $500,000 and the second above $500,000.
Guaranty: No personal guaranty is required for loans below $200,000. A personal guaranty from all individuals and entities that own more than 20% of the business is required for loans above this amount. The same rule applies to corporations and partnerships where an individual or an entity owns more than 20%.
If no one owns more than 20% of the business, at least one person must provide a full guaranty. Sole proprietors, independent contractors should also provide a personal guaranty. For general partnerships and limited liability partnerships, all partners should provide a personal guarantee.
Collateral: You do not require collateral for loans below $25,000. However, for loans above this amount, the SBA uses business assets such as furniture, fixtures, equipment, and machinery. Also, if you qualify for a $2 million loan but only have $500,000 collateral, you don’t have to fund the collateral gap.
In addition, if your business owns real estate and qualifies for more than $500,000, the real estate and property should be listed as collateral.
Loan forgiving: EIDL loans are not forgivable. However, businesses can also apply for advances under the COVID EIDL program. Fortunately, businesses do not have to repay these advances.
Fees: There are no application fees for loans below $25,000. However, for loans greater than $25,000, there is a one-time $100 fee. A one-time $100 fee for loans above $500,000 also applies when the SBA accepts real estate as collateral. The applicant shall also cover any associated costs with recording the real estate lien.
EIDL Program Background
The COVID EIDL program provides businesses with relief funds to alleviate the adverse effects of the pandemic. The fund aims to provide working capital and operating expenses to help keep small businesses afloat.
EIDL loans are different from other disaster recovery loans. This program allows the SBA to provide low-interest, fixed-rate, and long-term loans for small businesses to help them recover from the effects of the pandemic. The relief ends on December 31, 2021, or when the funds deplete, or whichever comes first.
The funds come at a critical time following a report by Goldman Sachs that shows 44% of small businesses have less than three months of cash reserves. As such, small businesses are likely to collapse if another COVID-related emergency should arise.
The research further revealed that the pandemic affected small businesses disproportionately. More than 51% of black-owned small businesses have less than three months of cash reserves.
Keep in mind that businesses cannot specify the loan amount. Enterprises can send their applications, but the SBA calculates the loan amount based on the economic injury. Economic injury is the change in the financial situation of a small business because of an effect of a disaster. In this case, the economic injury funds, EIDL, are being distributed following the COVID pandemic.
Am I Eligible for COVID EIDL Funds?
A small business qualifies if it has less than 500 employees. This includes businesses and their affiliates. However, the business must not have more than 20 locations.
Agricultural enterprises qualify if they have less than 500 employees.
An individual or sole proprietorship that operates without staff or as an independent contractor.
A corporative and its affiliates with any, with less than 500 employees.
An affiliate can apply for the loan if the qualifying entity has an equity interest or profit share of 50% and above.
Applicants must show “substantial economic injury” caused by the pandemic. The injury includes events that cause the small business:
Be unable to meet its obligations as it matures
Fail to pay its operating expenses
Market or produce services as marketed
The fund further emphasizes support to hard-hit industries. These include:
Accommodation and food services
Arts, entertainment, and fitness facilities
Clothing and clothing accessory stores
Non-internet publishing services
Personal laundry services
Rental and leasing services
Site seeing and scenic transportation
Sporting goods, books, and music stores
Transit and ground transportation
Who Is Not Eligible For COVID EIDL Loans?
Small businesses that were not in business before January 31, 2020
Businesses that do not meet the program’s size limitations. Employees are capped at 500 and 20 for physical locations for companies with multiple locations and affiliates.
Businesses engaged in illegal activity at the federal or state level.
What Can I Use The EIDL Funds For?
If you have applied and qualified for the EIDL funds, you need to channel the money to allowable uses. Many business owners are concerned about spending the funds incorrectly. Generally, it’s best to have a strong accounting program to track your spending for business visibility and future scrutiny by government agencies.
Businesses have both to-date and future expenses. Usually, to-date expenses are reported as liabilities in the accounting books and which a business cannot fulfill due to the pandemic. In this case, the business can use the EIDL funds to pay debts and bring the working capital to normal levels.
Future expenses are business needs the entity cannot fulfill throughout the injury period. This refers to payments such as fixed debt payments and fixed payments such as rent, insurance, and utilities. In addition, businesses can use the funds to pay commercial debt such as credit card debts, lease payments and mortgage payments, and federal debt, including payments to the SBA. Debt payments can include monthly installments, prepayments, and deferred interest.
What Can’t I Use EIDL Funds For?
The payment of dividends and bonuses.
Payments to directors, partners, directors, stockholders, and officers.
Payment of stockholder or principal loans except when non-payment would result in hardship to the stockholder and when the stockholder injected the fund due to the disaster.
Expanding the business and acquiring fixed assets.
Repair physical damage to the business.
Payment for relocation.
Penalties for non-compliance with laws.
How to Apply
If you have already applied for a loan with the SBA, sign into your portal and find Form 4506-T to apply for the new revised loans. New applicants can submit the same form by visiting here. In addition, applicants should be ready to release tax forms to the SBA for revenue verification.
How to Make the Best Use of EIDL Funds
As a small business owner, it’s crucial to apply for the EIDL funds to recover from the COVID pandemic. However, once your loan is approved, the next step begins- spending the funds. Therefore, it’s essential to plan your finances and account for all the spending for compliance reasons.
At Signature Analytics, we’re excited to offer a warm welcome to Bill Ness and Zak Higson, who recently joined the team in two essential leadership roles. These executives bring several years of business expertise and experience to our one-of-a-kind group, and we wanted to take the opportunity to better introduce them to the local markets that they will be supporting along with our extended services team.
While welcoming these two to our team, we also want to highlight a recent and well-deserved promotion for our existing team member, Tony Sands, who’s been an integral part of the company’s success over the last several years.
“As Signature Analytics looks toward our next phase of growth, we were searching for leaders and team members that reflected our core values as a customer-centric company. With these new leaders, we not only found decades of business expertise at some of the region’s most respected companies but also a deep commitment to Signature Analytics’ mission to help business owners improve performance and achieve their goals.”
– Pete Heald, CEO
Please read below to find more about these recent additions and promotions and what they mean for the future ahead.
Meet Bill Ness, EVP & San Diego Market Leader
Bill recently joined the Signature Analytics team as our Executive Vice President & San Diego Market Leader. In this role, he’ll be leading our accounting, financial, and business advisory services team with his comprehensive operations expertise.
His experience is both extensive and impressive in the San Diego market and has served startups to Fortune 500 companies. He has a deep understanding of building service models, strategic operational planning, mentoring and developing team members, while also contributing to company expansion and growth, and is excited to put this knowledge towards helping business owners and company leaders improve and grow their businesses. He aims to foster a culture of team excellence and exceptional customer care and maximizing team resources to reach important business goals.
Whether you think you can, or you think you can’t – you’re right,”
– Henry Ford
Bill is originally from the East coast (Maryland) but has also done time in NC, AZ, and UT. A fan of crab cakes, Bill still connects to Maryland by shipping crab cakes to CA each month. Outside of work often you’ll find Bill at the gym, on a run, trying to find fun on the golf course, or helping watch his new grandson Cole.
Meet Zak Higson, EVP & New Market Leader
This past month, Zak also recently joined the team as our new Executive Vice President and New Market Leader. He has over two decades of finance, operations, and business consulting experience and was also a Co-Founder of several successful restaurants throughout San Diego County over the last decade.
Like many of our clients, he’s been a serial entrepreneur with a strong work ethic and has a great deal of experience in the food and beverage, hospitality, distribution, and manufacturing industries. His strong people skills, financial acumen, and deep understanding of our customer needs and challenges let us know that our clients will be in very good hands. As we look to further expand our reach in 2022, Zak will play an integral role in guiding the organization into new markets.
Zak and Bill will work alongside existing company leadership to take Signature Analytics to new heights. Their knowledge of our current marketplace and our customers is plentiful, and their presence is valued here.
It’s always ok to not know, but it’s never ok to not care.
– Zak Higson, Executive Vice President & New Market Leader
Zak is an avid hockey fan and a true-blooded Canadian at heart. He spends a lot of time with his three kids; Clark (11), Merara (3), and Rowena (1). Zak is involved in numerous food banks, has a passion for improving the food system, and even has a small hobby farm of his own.
Tony Sands, SVP – Business Development & Regional Sales Manager
Tony recently accepted the promotion to Regional Sales Manager for the Signature Analytics team. In this role, he’ll be leading our business development efforts within the Southern California markets of San Diego, Orange County, and Los Angeles. Throughout his 6+ years at Signature Analytics, Tony has continued to drive tremendous client success through listening to the needs of the clients and developing a custom solution to meet and exceed their goals.
His experience stretches throughout San Diego & Orange County markets since 2001. Always focused on middle-market businesses, starting with credit training at a regional commercial bank to portfolio management with a start-up bank and business development with a high-growth bank.
Tony’s passion for building relationships in the marketplace among partners and clients has been key to his success. He’ll continue to support current business development efforts to drive new business and company revenue growth. In his new role, his vast client expertise and consultative approach will be essential in developing, mentoring, and training our growing team. Tony is excited about the new challenge and has set ambitious goals for team success while fostering a culture of continuous growth.
“Luck Is What Happens When Preparation Meets Opportunity”
Tony is an alumnus of SDSU and has family throughout the Southern California area. He takes pride in using his finance degree daily. In his personal life, he enjoys spending time outdoors with his wife, Ashley, and daughter, Irelynn. He is committed to CrossFit, football fields, home improvement projects, winter sports, most importantly – he likes to be challenged!
Looking Ahead to the Future
At Signature Analytics, we know that every business leader we work with is faced with critical choices that impact their companies’ future, and they need good visibility to make the right decisions. Looking ahead, we’re still focused on delivering accurate, relevant, and timely financial information each month, enabling business leaders to make better decisions about their company’s future.
Having Zak and Bill join the company’s leadership team along with Tony’s new executive role is both exciting and pivotal for the next phase of Signature Analytics, which includes growing our team, improving our product and service offerings, and looking to expand into new markets.
Our vision is to help business owners and leaders improve performance to achieve their goals. This statement is essential to the values we embody as a consulting-based organization and why our culture focuses on driving continuous improvement, results, and growth for companies. We do this by providing a team of expert accountants and financial advisors who take your business beyond the numbers with actionable insights and recommendations that focus on forward-looking activities, direction, and strategy.
Most often, when you start a business venture, money is tight. You are usually focused on pouring your savings to get the business up and running. While you’re busy managing the day-to-day aspects of running a business, you may overlook other tasks like developing sound processes and workflows that aid in the management of the finances of your business. It happens a lot. However, once your business starts growing, the importance of having a sound accounting and financial management foundation is highlighted.
Most business owners then begin to consider better, more efficient, and accessible ways of understanding their numbers to grow their business. They start to assess the different roles that make up the accounting and finance function. They start asking questions such as; will a bookkeeper be able to take care of the financial functions of my business, how do I find a good accountant, or do I need a CFO? Below we’ll address these questions to help you better understand the financial management team you need to grow your business.
Bookkeeper vs. Strategic CFO
Depending on how big your business is and its lifecycle, there are various options for managing its financial operations. There are internal and external roles that can help with day-to-day financial processes, such as reporting and strategic advisory functions, that have to be considered when choosing a team to manage your business’s finances.
The financial management team you choose will depend on your goals, resources, and the expertise of the people you already have on your staff. Below, we will further explain who strategic CFOs and bookkeepers are to help you determine which of your organization’s needs.
While we understand that these are two VERY different roles within the accounting and finance function of your business, so if you get that, great. However, you’d be surprised how common it is for the duties tied to these two roles (and others) to be very misaligned with excepted responsibilities and skills. We want to clear that up as both are crucial to your growing business.
What is a Bookkeeper and What Do They Do?
A Bookkeeper is tasked with recording and maintaining financial transactions such as sales revenue, expenses, and purchases. These professionals record these financial data into ledgers and financial software such as QuickBooks Online. Bookkeepers are usually most sought after by small business owners to assist with financial management tasks. A good bookkeeper should be able to perform the following tasks:
Record expenses, sales, accounts receivables, and accounts payable.
Reconcile bank statements to detect any accounting errors, achieve accurate balance, and record the reconciled bank statements in your accounting system.
Paying bills: After recording the purchase transactions, the bookkeeper is responsible for ensuring that bills for supplies and inventory purchases are offset.
Sending invoices: Bookkeepers prepare invoices and send them to clients so that your business can receive payments on time.
Organizing and maintaining various documents such as purchase receipts.
You should expect that a good Bookkeeper or a Junior or Staff Accountant to provide you with basic monthly financial statements such as income statements, cash flow statements, and balance sheets. However, you shouldn’t expect your bookkeeper to perform the following tasks:
Provide guidance on how to improve your finances
Analyze your financial results
Create financial projections of profit or cash
Make decisions about the financial directions that your business will take
Making such decisions is where a Strategic CFO comes in.
First Things First, What is a CFO and What do They do?
A CFO is the Chief Financial Officer of a business. As such, a CFO will focus on your financial strategies and overall financial management. But what makes a strategic CFO? A CFO can be a pragmatic strategist by addressing vital uncertainties, constraints, and performance issues and taking tangible, realistic actions geared toward moving the company forward. The CFO accomplishes this by performing the following tasks:
Developing strategies and detailed plans for achieving your business financial goals: It is imperative that CFOs up their game strategically. A CFO’s development strategy should entail performing tasks such as assessing the business environment, confirming the objectives of the business, identifying the resources needed to attain these objectives, and then designing ways of achieving them.
Providing comprehensive guidance to help you make financial decisions: A good CFO should assess the market conditions, check the viability of different financial investment projects, and advise you whether to invest in them.
Preparing annual budgets and financial forecasts: The CFO should be able to create annual budgets that make a baseline to compare actual results to projected results, determine how the results vary, and come up with ways of remedying the variances, especially if they are negative. Also, they should prepare financial projections that tell you whether the company is heading in the right direction and the expected income that the business will achieve in the future. These budgets and their activities should also align with your greater business goals for that year and beyond. Learn more about strategic budgeting here.
Measuring and improving financial performance: They should use different measurement metrics such as current ratio, quick ratio, operating cash flow, return on equity, accounts payable turnover, EBITDA & EBITDA growth to measure the financial performance of your business and develop ways of improving the performance.
Maximizing profits: The CFO should perform tasks such as controlling costs, improving productivity, and analyzing the pricing strategies to help you maximize your business profits.
Assessing and minimizing financial risks: Suppose a given project is not doing well financially as was projected, the CFO should be able to establish exit goals, evaluate exit readiness, promote exit options, provide analysis of the value of exit options, and execute a strategic exit plan. You can learn more about exit planning here.
Managing cash: When it comes to cash management, the CFO is tasked with figuring out how to make payrolls and ensuring that the business does not run losses. Most CFOs manage cash challenges by focusing on cash outflows and stemming the amount of money that leaves the organization.
Establishing policies and procedures that ensure smooth financial operations: Your CFO should create accounting and financial processes, procedures, and policies that clarify roles, authority, and responsibilities that help align your F&A operations with your financial goals. They should also understand the scope of financial risks that an organization faces and develop mitigation strategies against these risks.
Raising capital: A CFO should be able to source investors, shorten the time required to raise capital, ensure that you get the best investors, and negotiate the best price and terms for the equity.
Handling mergers and acquisitions: For companies selling or acquiring smaller businesses for growth, a CFO plays a crucial role in the merger process. For starters, they are the ones who create a transactional plan and maximize the synergy with the potential acquisition targets. They also ensure that the integration between your company and the company you’ve merged with is smooth.
Managing relationships with shareholders, lenders, and investors: CFOs are also tasked with ensuring smooth relations with various parties such as shareholders, lenders, and investors. They do this by reporting the financial position of the business or paying dividends and loans.
Overseeing all accounting and finance staff and coordinating activities among them: A Chief Financial Officer is responsible for controlling the financial activities of a business and coordinating the activities of accountants and financial managers to ensure that they are geared towards ensuring that the company attains its financial goals.
As we noted earlier, if you own a small business or a startup, hiring a bookkeeper would be a smart move. The Bookkeeper will help you keep accurate records and ensure that various transactions, such as cashing checks to pay vendors, are handled on time.
However, after your company has grown exponentially, you’ve hired more employees and attracted more clients. Maybe you’re in the stages of making the next big move like an exit strategy, PE/VC investment, M&A, or hypergrowth to an IPO; then it might be time to include a CFO position within your finance functions.
Given that your Bookkeeper was the one handling your finances during the growth period, you may be tempted to elevate them to a Controller or CFO position. Frankly, that wouldn’t be the most advisable move. For starters, the Bookkeeper or any other lower-level accountant will now be well in over their head. Moreover, given their lack of or limited knowledge on the responsibilities of a higher level and strategic financial position, like a CFO, they won’t be able to provide you with accurate and relevant information on time, if they do this at all. You, therefore, won’t likely get the accurate or deep visibility and analysis needed to understand how well your business is performing financially.
So, does that mean your Bookkeeper will be unable to perform the tasks of a CFO because they are incompetent? Not at all. While this person may be a stellar Bookkeeper or Staff Accountant, performing the tasks of a senior financial officer such as a financial Controller or a CFO is a different beast altogether. Sure, they all perform the accounting and financial functions for the company, but that doesn’t mean that a Bookkeeper’s experience prepares them for senior financial position rigors, challenges, and responsibilities.
That said, there are instances when you can promote your Bookkeeper to a CFO or a financial Controller. You should only take that step if they have the specific accounting, management, finance experience, and applicable degrees needed to be a CFO. Tasking them with the CFO job with limited or no qualifications is unfair to them and puts your company’s future in jeopardy.
In What Ways Can Your Business Benefit from Hiring a CFO?
While most small businesses benefit from having a CFO or Controller on their accounting and financial management team, not all of them need those roles on a full-time basis. Moreover, hiring a CFO on a full-time basis is costly. According to Salary.com, hiring a full-time CFO or Controller employee costs $170-$350K per year in California. As such, fractional CFO services is a more cost-friendly option for small businesses that need strategic financial guidance on a part-time basis. Opting for fractional services ensures that you avoid hefty salaries, bonuses, benefits, and employers’ taxes that accrue from hiring a full-time CFO.
Most business leaders usually question whether they need one or the other, or both a CFO and a bookkeeper? Well, the question you should be asking yourself is how much your business is suffering or open to unforeseen risks because of not having a proper financial management team?
It would be best if you had a bookkeeper if you’re questioning the quality and meaning of numbers in your QuickBooks. That way, you get to have more time focusing on the core functions of your business. However, if you and your management team are looking at your numbers and using those figures to make data-driven business decisions, yet you’re not sure whether your operations are running well, then you need a CFO.
Whatever your answers are, you have plenty of options to choose from. One excellent choice you can make is partnering with an outsourced accounting and finance team that has the mindset of solving your pain points while helping you meet your current and future accounting and financial objectives. They can also support you in building a roadmap to reach big business goals, taking your business from point A to point B and beyond.
There are numerous reasons to hire a comprehensive accounting and finance team. Some of the reasons why many businesses come to us include the fact that they are experiencing exponential growth, rapid change, preparing for a significant transactional event, or need better management, reporting, and improved visibility in their businesses. They may realize that maintaining the status quo or operating on gut feelings without access to solid, reliable data hasn’t allowed them to grow and improve their businesses, and this is where we swoop in.
Our comprehensive solutions allow for greater scalability and flexibility while your company is experiencing periods of growth or change. Working with Signature Analytics provides all clients with full access to your immediate team and anyone on our staff or within our partner network who can add value or solve problems for your business. Your staff gets the benefit of having the additional support and training they might need, and you reap the rewards of having excellent accounting and financial leadership and expertise joining you at the table. Book a consultation to learn more about our services.
As the world seemingly gets the coronavirus problem under control, the United States is at the front line of anticipating a new post-pandemic future. With the lockdowns and business shutdowns being a thing of the past, the next problem we have to deal with is nurturing the economy back up.
Everyone is excited that the cases of COVID-19 are coming to a stop. According to an analysis by Deloitte, the next phase in this recovery is the gross domestic product, which is poised to boom beyond the pre-pandemic period.
However, despite the expectations, inflation is real, and it is coming at the US and global economy fast. The cost of goods and services has gone up and has stayed there, and it may worsen before it gets better. There will be a lull before the storm, and small businesses are presently weathering its greatest brunt.
If you run a business, you must anticipate the economy’s performance and appreciate the long-term effects of inflation and a roaring economy. This post will dive deep to analyze the most likely long-term effects of the post-pandemic economy and how your business can manage through it. Read on to discover.
What is Inflation?
Inflation is a period when the cost of goods and services shoot up. Inflation often begins with a shortage of service or product, leading to businesses increasing their prices and overall costs of the product. This upward price adjustment triggers a cycle of rising costs, in the process making it harder for businesses to reach their margins and profitability over time.
Forbes has the most straightforward clear definition of inflation. It defines inflation as a rise in prices and a decline in the currency’s purchasing power over time. Therefore, if you feel like your dollar does not take you as far as it used to before the pandemic, you are not imagining it. The effect of inflation on small to medium-sized businesses may seem somewhat insignificant in the short term but can quickly make an impact.
Reduced purchasing power means that businesses will sell less and potentially lower profits. Lower profits mean decreased ability to grow or invest in the business. Since most companies with fewer than 500 employees are started with the owner’s savings, it puts them at significant financial risk as inflation rises.
Effects of Inflation on SMEs
Here are the three most notable effects of the post-pandemic economy on US businesses every entrepreneur should expect.
Erosion of Purchasing Power
We have already noted it, but it is worth repeating: the first effect of inflation is often just a different way of describing inflation. Inflation hurts the purchasing power of a currency as prices of goods and services go up. Interestingly, prices go up fast during inflation but are gradual in coming back down, if ever.
Shortages of Finished Products in the Market
You may already feel the pressure of inflation as an entrepreneur, but its full impact is yet to be felt. Inflation is not linear; it ripples through an economy differently, at different times, and affects businesses differently. One of the most immediate impacts is a shortage of supplies that may prevent the completion of production goods.
When manufacturers cannot get all the raw materials they need to produce finished products, the entire market hurts. While Just In Time (JIT) manufacturing was developed to address such a potential problem, the inter-connected market leaves many entrepreneur’s funds tied up in inventory-in-process, accumulating losses and driving demand and prices higher.
Inflation Raises the Cost of Borrowing
So the economy isn’t doing so well. But optimists paint a rosy and colorful picture of the economy once the pandemic problems are dealt with. If your business is hurting financially, why not just take a small loan to insulate it in these challenging times? During inflation, the cost and availability of loans can cause major problems down the road. This may not be an issue today, but it could be a bigger issue in the future.
How SMEs Can Manage Post-Pandemic Inflation
No matter what industry you do business in, your business must make the right strategic decisions in a time of inflation. The decisions that you make to manage inflation may determine whether the business sees its next anniversary or not. Here are five steps your business can take to forestall the effects of inflation in 2022.
Evaluate Product or Revenue Mix
There is never a better time to scrutinize and optimize the products your business deals in than during inflation.. The most effective approach is to analyze product or service streams, compare performance over time, and get a good picture of the business and available options in different geographical markets, client types, and distribution channels.
The whole idea behind streamlining your business during inflation is to cut costs and maintain profitability in a slowing market. To this end, a business may shift its production to focus on higher-margin products and services and protect the business’ bottom line. Analyze potential short and long-term effects of the shift and understand how it will affect the future of the business before implementing it.
Strengthen Your Products’ Pricing
The prices of almost every product go up during inflation. Your business, too, will have to consider price hikes to stay in alignment with the rising costs in the market. Even if economic inflation does not immediately impact your industry, it pays to be proactive by strengthening your product’s pricing and improve your business’ competitive market position.
Before increasing prices, analyze the competition and let their prices be one of your guiding points. You will also need to be upfront with customers about the price increases and why they are necessary. Transparency will help customers adapt to the new situation, and it helps them prepare for higher costs without compromising their loyalty to the business.
Evaluate Risks to Your Supply Chain
A modern business supply chain can be long and complex. Contrary to popular belief, the process by which a product moves from raw materials through manufacture to retail is riddled with risks. One effective way to prepare your business for inflation is to protect the supply chain, especially if you deal in physical goods.
The most common risks to small business’ supply chains are:
Over-dependence on a single supplier
Using long-lead-time suppliers such as imports
Heavy, bulky, hazardous, or perishable products that are hard to store
Materials that are passed through a JIT supply chain
There are many steps you can take to mitigate supply chain-related risks in your business in a time of inflation. Some of these steps may include:
Setting up an alternate supply chain – not merely finding an alternate supplier
Stockpiling critical supplies that have a low holding cost
Putting in place an expedited supply strategy
Reviewing stock levels at every stage of the JIT supply chain
Each business has different supply chain risks and now is the time to critically look at yours. What changes can impact the near-term and long-term health of your supply chain?
Understand Your Inventory
When prices start going up, a healthy inventory can be a competitive advantage. By the same principle, it is more profitable to keep a minimum inventory when prices are going down. Understanding your inventory levels and keeping them in line with market demand will help you make better decisions to maximize profitability. It also helps to improve internal accounting control, business oversight, and inventory management processes and accuracy while you’re at it.
Proactive entrepreneurs take the time to anticipate potential scenarios of inflation. You can use the ‘What If’ technique to consider various possible scenarios that will affect your business. For instance, you can anticipate wage increases, higher material prices, and disruptions in the supply chain. Any time you forecast a scenario make sure to consider the amount of money your business needs to get through each scenario.
Cash is always king. More than ever, in inflationary times, you should not let your customers use your business as a bank. A high inflation rate will pile risks on a business, and it hurts more when its receivables become uncollectible.
During inflationary times, you need efficient systems and processes to drive greater visibility into your business, so you can act fast and stay ahead of the competition. The real question is, do you know your numbers?
Post-pandemic inflation is already with us, and businesses are taking a hit. No matter your industry, you need a solid financial and operational strategy to evaluate the risks to your business and put measures in place to minimize them. Contact Signature Analytics and let us help you get visibility into your financial performance so that you can achieve your goals.
Few people have the accountant’s touch when it comes to handling a business’s finances, and that’s okay. While you, as the executive, have likely spearheaded aspects of your accounting strategy out of pure necessity at this point, it may be time to update your processes and hand the strategy over to the experts.
Instead of scrambling to tackle finances in-house, consider outsourcing. You’ll receive unparalleled accounting support and strategy while gaining a flexible team of accounting experts so you can go back to focusing on your business growth.
Before focusing your attention on growth, let’s cover the three main benefits of accounting outsourcing for your business so you can make an informed decision.
Some main benefits we’ll cover in more detail below, include:
Letting your outsourced team own the accounting process
Having the right, qualified people on your side & managing through turnover
Gaining access to an entire team and extended network of experts
Let’s dive in.
#1 Owning the entire accounting process
While your business expertise is valuable to inform financial decisions, one of the benefits of outsourcing accounting is that the experts provide you with the best and latest processes and technologies to help you efficiently and effectively accomplish your goals.
First, the experts will evaluate your processes. Understanding your current processes is an essential part of your accounting strategy. By outsourcing, your new partner isn’t trying to reinvent the wheel or overhaul your operations.
Outsourced accountants will come in with a fresh set of eyes and use their expertise and experience to offer suggestions on ways to update and improve your processes. They are looking to make things better by adding efficiencies and ensuring new processes and workflows remain scalable to fit your company’s needs as it changes or grows.
They’ll likely evaluate:
The current team and their skill sets
Information and structure
Current processes and technology uses
Data cleanup protocols
Next, the team will evaluate your current technology in the same way. Since automating manual processes is imperative to time-saving, updating your technology may be the key to saving valuable time and money.
By eliminating manual processes and implementing automated solutions, you take the hours of manual (typically low-level work) work off your employees’ plate, giving them more time to work on goal-oriented tasks that add value to the business.
Automation also takes human error out of the equation, which reduces the risk or the possibility of fraud.
From there, it’s time to implement the new processes and technology. Your outsourced experts will document all new processes and provide training to your existing employees. They continue to be accountable for maintaining those processes and managing the team, taking the burden of management off the CEO or Owner’s shoulders while also empowering the current team to stay accountable and perform at their best.
After your processes and technology are optimized, it’s important to hire the right people in the right roles to drive your business into the future.
Turnover is inevitable at any company and is even more common at a rapidly growing company.
Common mistakes we see are:
Companies hire lower-level employees and expect high-level output
Companies hire high-level employees with high pay but they focus on low-level work
Companies do not know how to manage or structure an accounting department
In all scenarios, both lead to frustrated employees and subpar results – which frustrates executive management and leaves employees feeling dissatisfied. Employees feel blamed, and oftentimes, you have good people already; they likely need a little training oversight to be more effective in their role.
So do you hire more people? Can you commit to affording to hire more people or the people you need full-time?
With growth or change, outsourcing becomes an ideal solution. One reason is that an outsourced team can provide scalability and flexibility as you grow and provide continuity if you experience turnover.
If you experience internal turnover, the outsourced team is there to fill those gaps temporarily or permanently. If you’re looking to hire for the internal role, your accounting experts can support you with the hiring, onboarding, and training process.
Suppose you experience turnover within your outsourced team. In that case, the good news is that multiple positions are supporting your company within the outsourced team. And there’s always someone who is being training by your outsourced team before the departure. This is why continuity is such a big deal for many.
Overall, your company will experience lower turnover even in times of high demand, cash flow problems, or special projects with an outsourced partner by your side who is helping to manage this process.
Another benefit of outsourcing to an accounting firm is that you gain an immediate team of trusted experts but also have access to the entire team within the company – should you need it.
What’s important is that your outsourced team will integrate themselves into the fabric of your business. They are always looking for new ways to help, offer ideas and insights they’ve seen in the market, and keep you posted on the latest trends, strategies, and technologies.
Since they are always thinking about your business’s well-being and future direction, if they should ever need to bring in another in-house export or provide an introduction to an outside one, you can bet they’ll do it helps your business. They are well connected with many experts outside of accounting, such as advisors in HR, marketing, banking, and various other reliable partners to support you.
Ultimately, the level of sophistication a team of outsourced experts can bring to your business is unmatched. With a plethora of experts acting as part of your team and sitting in the driver’s seat of your strategy, problem solvers are consistently a phone call away. Plus, they’re committed to helping your company grow.
Take the burden of accounting off your shoulders and let your outsourced accounting team manage the process for you. You’ll gain a fantastic partnership, improve your business, and gain better insights than you were likely previously capable of doing alone.
Managing the accounting function and financial reporting in a small or medium-sized business is an enormous undertaking for a growing team. Outsourcing your accounting needs gives you expert-level financial service and support to achieve your business goals.
When you identify the need for a partner in your financial department and begin the accounting outsourcing process, your business agrees to let a team of trusted experts come in and help you evaluate everything you currently do. Doing this can maximize your company’s potential whether you’re in a growth or transition period.
What does an outsourced accounting team do?
The experts you outsource should help you define, develop, and achieve your business goals. To begin that process, some firms will assess your current situation. For instance, we like to review four major pillars of your business which are your people, processes, technology, and reporting.
We’ll also take some time to outline your business goals. If you haven’t gone through this process before, a good financial expert can help guide you through various Q&A sessions with the company stakeholders.
From there, it’s essential you bring all of those elements together and design not only a roadmap for improving your accounting function, processes, and financial reporting but ensure that the right metrics, analysis, and KPIs are developed in relationship to the overall business goals. Whether that be raising capital, improving profitability, scenario planning, or managing hypergrowth. This is really bridging the gap between the day-to-day and the big picture stuff.
Structuring goal development and building a roadmap
Validating your information and process optimization
Structuring your financial reporting and conducting deep analysis
Managing the day-to-day accounting function
Focusing on business advisory & forward-looking activities
Structuring your company’s financial and overall business goals is an essential first step in creating alignment between your business and your outsourced experts.
Goal development and building a roadmap to achieve them
Although your outsourced experts are accounting and financial gurus, they are new to your business even if they have previous industry experience. To develop business goals, they’ll start by reviewing and understanding your business by doing an assessment.
This may be looking into your:
Business goals and major drivers
Current business concerns
Immediate needs and priorities
With the combined industry and business knowledge under your outsourced team’s belt, they can begin gathering information and validating your current processes.
Understanding your information and processes
One of the advantages of accounting experts at your business is evaluating all of your current accounting processes and your financial reporting (including accuracy and consistency), so you and your team don’t have to think about it. Additionally, this allows a new team to come in and see things from a fresh, unbiased perspective and make an impact.
The reason they do this is to:
Understand your team’s roles, current capabilities and skills, and development goals
Review and validate your existing information and structure
Perform data clean up to ensure historical accuracy
Validate processes, make recommendations for optimization, and implementing new ones where needed
Refine how they integrate with your existing team and where they need to fill the gaps
After this evaluation, the experts can seamlessly integrate into your company, your current team structure and are then able to set a foundation for accurate, relevant, and timely reporting.
Delivering sound financial reports and analysis
Now that your business leaders have had an opportunity to build trust with the experts and have reviewed their recommendations, the next step is to give you the information you need to make sound financial decisions.
That information is typically provided in the form of:
Accounts receivables and payables
Cash flow management and reporting
Financial metrics, reporting, and KPIs
Business and financial analysis
Board meeting support
Not only will your outsourced experts provide the above reports regularly, but they may also take this reporting one step further by providing business modeling and deeper financial analysis to help you reach your business goals.
This reporting may include:
Annual budgeting & benchmark reporting
Business-specific metrics & KPIs
With this measurable data provided consistently, you will create additional value by taking actionable steps to improve your business.
Supporting your day-to-day needs
Not only do your outsourced experts help you achieve your financial business goals, but they also support your day-to-day accounting and financial operations.
Some of that support includes:
Manage A/R and A/P
Staff mentoring and supervision
Inventory process development and setup
Bank and credit card reconciliations
Whatever daily accounting operations help your business desires, your outsourced experts are there to ensure everything is getting done on time and there’s a clear delegation of duties and responsibilities, so you don’t have to.
Why would you need to outsource?
Outsourcing your accounting may be a need because of:
rapid company growth
cashflow has become a challenge
you’re not getting the reporting you need
you may have just lost a valuable member(s) of your financial department
you’re not quite ready to take on the financial risk of employing a full-time accountant
you’re having issues getting financial backing from a bank or investor
These are all valid reasons. Whatever the case is, enabling expert accounting, financial, and advisory help in your business – takes some of this burden off your plate. This team truly partners with you and your business leaders so you can focus on other areas of your business.
It’s a classic case of allowing you to start working on your business again instead of working in it.
Outsourcing for growth
As your revenue increase, so do your daily business demands. As a result, your financial needs or the complexities of your finances will also increase. When you’re scaling your business, it’s often helpful to outsource specific back-office operations, such as your finance and accounting department.
Doing so allows you to hire a team of consultants who specialize in going beyond the numbers and meet your growth needs. As a result, this may include implementing new processes, reporting methods, or technology to match your scaling business needs.
Outsourcing due to turnover
When a prominent part of your financial team, like a senior accountant, controller, or CFO, leaves your business, it can be challenging to fill their shoes immediately, and doing their work on top of your own in the interim could lead to burnout.
Additionally, hiring a replacement may not solve the issues that ultimately led to them leaving the company. Many common reasons we see:
they feel unsupported by management and have no career path
they tend to have too much on their plates and are feeling burned out
they are constantly burdened by either doing too low level or work or even too high-level beyond their skillset
By outsourcing, you’re able to fill these gaps with vetted experts who are in the right role because financial experts hired them.
Even if these employees haven’t left your company, we’re able to come in and provide supplemental support, oversight, training, and career path development for your team.
And as you grow, you may eventually need to hire more in-house employees full-time, and your outsource team will still be to support the onboarding or transition of duties when necessary.
Outsourcing because you desire flexibility
If your accounting needs are becoming more complex, you might find yourself spending a lot of time managing them, taking away from other parts of your business. You may also feel uneasy about taking on the financial risk of building out a finance team or are unsure if it’s the right time to do so or who you should hire next.
By outsourcing to a team of experts, you gain the same benefits of having a full finance and accounting team that you usually see are a larger company; however, you pay for fractional support instead of paying for full-time salaries.
And as the business grows or contracts, so can the flexibility of your team. The model is designed to work for your business based on its needs, unlike a full-time staff or staffing agency.
If your business needs accounting and financial expertise and could use a trusted partner as an advisor, consider outsourcing an ideal solution.
Over the years, we’ve worked with several types and sizes of businesses and have seen so much success using this model – that, in many cases, we’ve made lasting relationships as a result.
In the current state of affairs, many leaders are thinking about the future. Forward-thinking is an essential part of business leadership, to be able to guide your employees and steer your company in the right direction.
In uncertain times, it is important to understand many different outcomes could take place. If you are trying to build a model based on these outcomes, you are going to need help.
Commonly, most financial leaders within an organization need assistance predicting their cash needs, drawing a mental picture of potential profitability, and learning how to make better data-based decisions for the company.
To plan for the future effectively, a leader must develop a plan. This type of plan is a financial model, and its aim is to forecast a business’s results over an appropriate time frame.
Given the current environment, due to the outbreak of COVID-19, we recommend creating a nine-month cash flow forecast to support your business through the end of 2020.
We recommend creating this and keeping three possible business scenarios in mind:
Your original plan
A probable case based on current data
The worst case
To help you, we suggest brushing up on those Excel skills to create more elaborate and complex financial models. These models will enable you to modify assumptions giving you the ability to see the outcomes immediately. If you are not an Excel guru, don’t worry, even a simple financial model will provide you with more insight into your business than you likely have today.
3 Scenarios And What They Should Tell You
The original plan scenario should be your current strategic business plan and budget for the year. If you do not have a budget, you can create this model, as outlined below. This scenario acts as the baseline for the other two scenarios: probable case and worst case.
The probable case scenario is what you expect to happen based on current information. For some businesses, this could mean growth, and for others, it may mean a reduction in revenue.
The worst-case scenario should depict what the business would look like if revenues drop, are delayed, and/or unforeseen expenses occur. This scenario reflects the most serious or severe outcome. In this scenario, forecasting in this way is critical, so preparations can be made to ensure the business can still operate under such adverse circumstances.
The best approach to building these scenarios is to start with the original plan. Your original plan scenario should be the easiest to forecast, and you might already have it if you created a strategic business budget for 2020. The numbers used in the original business plan will act as the baseline for creating the other two scenarios: probable case and the worst case.
A quick way to get started building the financial model is to calculate a monthly average of the last 12 months for each expense category. At Signature Analytics, we recommend companies break down their expenses into categories or buckets to understand their business expenses better.
Once you have that data, use this average as the baseline amount for each expense account. Then ask yourself, is this baseline still a reasonable estimate to help forecast for the next nine months? Did anything significant change before COVID-19?
Depending on your income channels, revenue can be forecasted using the 12-month average. If you have more accurate data, then, by all means, use it. For both revenues and expenses, look back at the same months in the previous year to see if any seasonal patterns or trends should be reflected in the forecast and make adjustments where necessary.
Lastly, if you never created a strategic business plan and budget for the year, there’s no time like the present to get that started, so you are not flying blind over the next several months.
Once the Original Plan has been created, determine what percentages (these would be increases or decreases) of revenue and expenses should be applied.
Manual adjustments can be made to any of the monthly numbers based on knowing future activities within the business. Think through possible disruptions to your employees, your supply chain, and your clients.
Worst Case Scenario
The final scenario is weighing in the negative impact of disruptions to your employees, your supply chain, and your clients. You might approach this as a broad decrease in revenue (15%, 25%, or even higher) to understand how that would affect your business and your liquidity.
Scenario planning should bring to light any warning signs that can trigger major strategic pivots to decrease a company’s risk.
One other helpful tool in scenario planning is to utilize storytelling. The Wall Street Journal reports that “data-driven stories enable a team to picture the various futures the organization might face; strong narratives challenge conventional wisdom and management’s assumptions, but should be logical and plausible.”
Remember, forecasts by nature are not factual; but, having the ability to use available forecasts to develop scenarios can provide some relief.
Simple scenario analysis allows you, as the business leader, to work through the assumptions and influences that directly affect your business. This creative and focused thought process can support you in times of high stress when making thoughtful, yet data-driven decisions for your business beyond that “gut feeling.”
Businesses still seeking relief from the impact of COVID-19 may be able to find it in the second round of PPP loan legislation passed by Congress in late December of 2020. The Consolidated Appropriations Act, 2021 seeks to overcome some flaws of the first round of the Paycheck Protection Program (PPP) while providing additional assistance to businesses still suffering in the wake of the COVID-19 pandemic.
Even those who were unable to get funding during the first round of PPP loans can apply for their first-draw under the new guidance. With relaxed rules on which expenses are eligible for forgiveness and specific funding set aside for lenders who operate in lower-income areas, businesses owned by POC, and small businesses, this round of PPP loans is better suited to serve the American population as a whole equally.
Since the program’s initial launch, our team of experts have had a chance to review the program in greater detail and want to provide our findings below. We know navigating through this legislation can be tricky, just know we are here to provide support and guidance to business leaders in need.
Quick Overview of Changes:
Dramatically expanded payroll and non-payroll expenses eligible for forgiveness
Additional clarity on loan terms
Updated limits on loan amounts
Clarity on forgiveness and tax savings opportunities
Flexibility on the covered period of the loan
Revenue reduction proof requirements
PPP Loans: The Changes for Round 2
To be eligible for PPP loan forgiveness, borrowers must use the funds on approved, covered expenses. Under the new legislation, the 40/60 split is still required: borrowers must use 60% of the funds on payroll expenses and can use up to 40% on approved, non-payroll expenses.
However, covered expenses in both categories have been expanded. Existing payroll costs included:
Salary, wages, commissions, tips
State and local payroll taxes
Retirement plan contributions
Expanded payroll costs now include:
Group life insurance
Group disability insurance
Group vision insurance
Group dental insurance
Existing covered non-payroll expenses included:
Interest on mortgage payments, excluding prepayments
Interest on debt obligations incurred before the covered period
Additionally, the new legislation expanded forgivable non-payroll expenses to include:
Certain operational expenditures like software and cloud computing service payments used to facilitate business operations, accounting, service or product delivery, payroll processing, billing, inventory, and HR functions
Property damage costs incurred during public disturbances that happened in 2020 and were not covered by insurance
Select supplier costs including payments to suppliers of goods that are essential to operations
PPE equipment and other worker protection expenses incurred to comply with CDC, HHS, OSHA, or state and local government authority after March 1, 2020, until the president’s national emergency declaration expires
Note that expenses for HSAs, QSEHRA, and Commuter Benefits like mileage reimbursement are still not covered under the new PPP guidance.
PPP Loan Terms
The new legislation brings additional clarity to the terms of PPP loans. Here are some of the highlights:
Interest rates are fixed at 1%
Interest is non-compounding and non-adjustable
No yearly fees
No guaranteed fees
No prepayment penalty
Borrowers are not required to provide collateral or a personal guarantee
Providing this guidance ensures that lenders cannot take advantage of borrowers seeking PPP loans. Additionally, while the maturity for PPP loans is five years, payments aren’t required until borrowers know how much of the loan will be forgiven.
Borrowers who do not apply for PPP loan forgiveness, however, will have to make payments within 10 months of the last day of their covered period.
Loan Funding Limitations
For first-draw borrowers, there is a limit of $10 million or 2.5 times the average monthly payroll and healthcare costs; whichever is less. Some exceptions may exist for restaurants and other hospitality businesses.
The loan limit for second-draw borrowers is $2 million and includes a stricter method of calculation, which is:
2.5 times the average monthly payroll and healthcare costs in the year prior to when the loan was received or the 12-month period prior to when the loan was made
Most hospitality and entertainment businesses, including hotels and restaurants, are eligible for up to 3.5 times the average monthly payroll and healthcare costs using the same methodology as above
If borrowers with an outstanding, unforgiven PPP loan would have been eligible for more resources under the new, expanded covered costs, they may amend their loan application and request a higher amount. Loans that have already been forgiven are not eligible to be amended.
Forgiveness and Tax Deductibility
With the expanded eligible expenses, forgiveness is much easier to receive. Additionally, the SBA has simplified the forgiveness process so that borrowers with loans of $150,000 or less may utilize a one-page application.
Tax benefits also exist for PPP loans. The funds are not included in any gross income that a business is required to report. Better yet, expenses that are paid for using the funding from a PPP loan are tax-deductible. That creates a double tax benefit as no taxes are due on the amount received and business can deduct expenses paid using the funds.
The Covered Period
New legislation has provided additional flexibility as to when borrowers use their PPP loan funds. While the covered period for the first-draw remains unchanged, second-draw borrowers can choose a covered period anywhere between 8 to 24 weeks after receiving the loan. This provides much-needed freedom to utilize the funds as necessary and eliminates the restrictions faced during the first-draw covered period.
Updated Eligibility Requirements
First- and second-draw loan recipients each have specific eligibility requirements. Both types of applications require that a business was operational before February 15, 2020, and remains operational. The first difference occurs in the required number of full-time, part-time, or seasonal employees:
First-draw applicants: Must have less than 500 employees
Second-draw applicants: Must have less than 300 employees or less than 300 employees per business location
Additional Eligibility Requirements for Second-Draw PPP Loans
Proof of 25% Revenue Reduction
One of the more stringent expectations of second-draw borrowers is the required proof of revenue reduction. In order to qualify, borrowers must show a revenue reduction of at least 25% in the first, second, or third quarter of 2020 when compared to that same quarter in 2019. The following are all required to be included in the revenue calculation:
Sales of products or services
All revenue from every source in whatever form received or accrued by the borrower and any affiliates
The funding from first-draw PPP loans is, however, excluded from this revenue calculation.
Only loans totaling over $150,000 will require borrowers to submit documentation to prove revenue decline during the application process. However, all borrowers will need to submit this information when applying for forgiveness. Here are some forms that will help provide the proper documentation:
Relevant tax forms
Quarterly financial statements
Fully Used First-Draw PPP Loan
In order to be eligible for a second-draw PPP loan, borrowers must have already used or will use their entire first-draw PPP loan.
The following are eligible businesses for both first- and second-draw PPP loans:
Certain 501(c)(6) non-profit organizations
Faith-based organizations that have less than 150 employees
Housing cooperatives that employ less than 300 people
Applications are ready for borrowers now and will remain live until March 31, 2021. Funds are first come, first serve so it’s best to apply as soon as possible. Finding lenders is easier than ever using the SBA’s Lender Match website.
Before applying, it’s best to gather these documents for both 2019 and 2020:
This article was originally written on April 8 and portions have been updated on July 7, 2020. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.
There are some aspects of this bill that will directly affect our customers and their businesses, which we have broken down in detail below.
Direct Payments To Tax Paying Americans
Part of the $2.2 trillion of aid this bill brings includes an estimated $290 billion set aside for payments to the American people. Citizens who pay taxes are reported to receive a direct payment from the U.S. government. The amounts of those direct payments vary based on household size and income level. These figures are represented below:
Single individuals are expected to receive a one-time payment of $1,200
Married couples are expected to receive a one-time payment of $2,400
Families with children under the age of 17 are expected to receive an extra $500 per child.
There are some stipulations for these monetary amounts. Those are for Americans earning more than $75,000 per year, the number of direct payments may be lower. Individuals earning more than $99,000 per year are not eligible for these payments. Another important note is one that affects child support payments. If an individual is behind on child support payments, they will not be eligible for this direct payment.
Small Business Payroll Protection Program
The CARES Act should also help many small companies and 501(c)(3) nonprofits who have suffered from little-to-no business during the COVID-19 pandemic.
Through the Payroll Protection Program (PPP), businesses with less than 500 employees have the ability to secure loans up to 2.5 times the average months of its payroll costs or up to $10,000,000.
If a small business, with employees located in the United States, were to secure this loan, they could use it to help cover some of the following needs:
It should be noted that securing a loan under the PPP can only cover expenses from February 15 to June 30. There is an estimated allocation of $350 billion set aside for loans and emergency grants.
If you think your small business or nonprofit organization could capitalize on this opportunity, call your Small Business Administration lender to begin the process as soon as possible. If you are not sure who your SBA lender is, start by contacting your local banks within your area or try the SBA Eligible Lender locator found here.
It might take some time to organize essential information like tax records and other important documents. The sooner all of these items are organized, the sooner the loan will come through. Be aware the first day to apply for these loans is April 3, 2020.
To help you get started, here are some great resources from the U.S. Treasury office:
For more information and details on the PPP (there are a lot of them), but the above resources can help you get started right away. Continue checking our internal resource center under the “Employer Resources” tab. Additionally, there are many on-demand webinars that can provide additional insight.
the self-employed or businesses that have no employees OR
businesses that did no reduce the salaries or wages of their employee by more than 25%; and did not reduce the number of hours of their employees OR
businesses that experienced reductions in business activity as a result of health directives related to COVID-19 and did no reduce the salaries or wages of their employees by more than 25%.
Also, the payroll calculation used in the loan application still applies to the forgivable amount, meaning the employee compensation eligible for forgiveness is capped at $100,000. However, they are increasing the max forgiveness per employee (non-owners):
Originally $15,384.61 for the eight-week period ($100,000 pro-rated)
It is now $46,153.85 for the 25-week period.
For Owners, Sole Proprietors, Independent Contractors, or General Partners:
For the 8-week period, forgiveness for owner compensation is calculated as 8 / 25 X 2019 compensation, up to a maximum of $15,385 in total for all businesses.
For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 / 12) of 2019 compensation, up to $20,833, also in total for all businesses.
The final day to apply for the PPP loan has been extended to August 8, 2020, allowing eligible small businesses more time to apply for the remaining $130 million of PPP lending capacity.
PPP recipients can apply early for forgiveness? We’ve had many clients ask us whether they can apply for PPP loan forgiveness before their covered period expires. By doing so, they forfeit a safe-harbor provision allowing them to restore salaries or wages by Dec. 31st and avoid reductions in the loan forgiveness they receive. So for now as things are evolving, we say hold off on doing this. Most banks will start accepting loan forgiveness applications in mid-August.
There is still much to learn about relaxing guidelines, we will do our best to keep this updated.
More Time to Spend Loan
One of the most significant changes with the PPP Flexibility Act is now borrowers have more time to spend the amount of their loan. Previously, only eight weeks were allotted to spend this money, which put a considerable amount of pressure on the borrower to ensure the funds were spent on forgivable expenditures. The time frame has been increased to 24 weeks after the origination of the loan or to December 31, 2020, whichever is earlier.
A reduction has been made to the mandatory payroll spending. This means the amount of money from the loan that was required to go toward payroll costs has been reduced from 75% to 60%.
What this change allows is for forgivable non-payroll expenses to be as high as 40%, enabling small business owners to put that money toward other costs they were struggling to pay. For example, for businesses that covered their payroll costs but still didn’t have enough to pay bills like rent, this helps free up some of the money for this purpose.
The repayment period has been extended. Previously, the repayment period was for two years, and now the extension goes to five years while retaining a 1% interest rate. Ultimately, this allows borrowers extra time to pay off the unforgiven portion of their loan.
If a borrower received their loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity.
One of the other significant aspects of the CARES Act is the tax cuts for businesses. There have been modifications made to the Tax Cuts and Jobs Act (TCJA) of 2017. These modifications directly affect the net operating loss rule, lifting the 80% rule, and ensuring losses are carried back five years.
There is other positive news for businesses and their payroll. A refundable 50 percent payroll tax credit for businesses directly affected by the novel Coronavirus is available to help employee retention.
A few other areas of significance include:
Any distilleries who are helping to create hand sanitizer in their facilities will have federal tax waived
Businesses are able to write off donations of goodwill and student loan payments for their employees
Suspension of penalties for those who must tap into their retirement funds
Every business finds itself in a unique situation during this time; therefore, if you are not already partnered with us, we recommend that you work with a tax CPA or Small Business Administration lender on how to navigate this bill and how it impacts your company.
Signature Analytics is here to support you and can provide references to our partner network upon request. Feel free to contact us to get started.
New Updates For Consideration
It is important to understand the CARES Act is on a “first-come, first-serve” basis, so if your organization needs funding, we urge you to get your paperwork submitted as quickly as possible.
Based on how many employees you have, the limit used when calculating payroll costs is $100,000 and includes insurance, benefits, and taxes.
Eligibility for PPP for self-employed or independent contractors is based on self-employment net income, but cannot be counted for payroll costs.
Any federally illegal businesses will not receive funding and cannot participate in this program.
Nearly $500 Billion More In Aid
As of the evening of April 21, the Senate has approved $484 billion in aid for the stimulus package. On April 23, the bill will go to the House to pass as a complete package and make this funding available.
This additional funding is to support the small businesses, hospitals, and many other businesses negatively impacted by the coronavirus. However, $310 billion of this aid is considered being allocated for the Paycheck Protection Program, $60 billion of which will likely be set aside for smaller lending facilities and credit unions.
Under the emergency Economic Injury Disaster Loan program, there should be roughly $410 billion in grants, $50 billion for disaster recovery loans, and 42.1 billion for salaries and other expenses for the SBA.
Hospitals and health care providers are looking at a likely $75 billion and an additional $25 billion for COVID-19 testing.
All of these amounts are part of what the House will take into consideration later this week.
This article was originally written on May 1 and portions have been updated on July 7, 2020, in accordance with the PPP Flexibility Act signed into law on June 5 by President Trump. Additionally, the PPP application extension period being moved to August 8, 2020, for small businesses to apply for the remaining $130 billion of PPP lending capacity. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.
Many business owners are feeling the pressure the coronavirus has put on the market and their companies. Many have their workforce operating remotely, some with only a skeleton staff, and others having to layoff their workers due to the impact of COVID-19.
In response to the economic hit many business owners are currently facing, the U.S. government responded with the CARES Act, a bill designed to bring health care assistance and financial aid to those individuals, families, and businesses hit hardest by the pandemic.
One of the significant benefits of the CARES Act for business owners to take advantage of to protect their workforce is the Payment Protection Program (or PPP). With the chaotic rollout of the Payment Protection Program (PPP), many business owners have already scrambled to file the necessary paperwork with their banks, credit unions, and other financial institutions to secure funding. All of which are all backed by the Small Business Administration (SBA). This aid will be critical in helping owners pay their employee’s salaries, benefits, company bills, and make other vital financial payments to keep afloat.
Despite the initial rush to submit the necessary paperwork, there is a waiting period that takes place once all the required documents are filed to when the aid finally comes through. Some owners have already received their funding, while others are still in that waiting period fueling more feelings of uncertainty.
Millions of companies are applying for this aid and loan forgiveness all once. As a result, funding approval is taking much longer than initially anticipated. Not only is the sheer volume of applicants incredibly high, but the process for going through each application is quite lengthy. We recommend being prepared for a waiting period of 90 days or longer.
No matter which scenario an establishment is facing, this growing uncertainty is leaving many business owners wondering what additional steps they should be preparing to take next to solidify the future of their companies while maximizing the benefits of the PPP program.
While millions of eligible companies are applying for forgiveness on their loans during this time, in the meantime, they must utilize these funds the correct way so these companies can maximize forgiveness.
If at any point during this process you have questions or would like to speak to an expert, please don’t hesitate to reach out. Our CFO task force, a highly skilled team comprised of accounting and finance experts, is working diligently to help small to medium-sized businesses navigate their way successfully through this process.
The Signature Analytics promise is to manage your accounting and financial reporting, so you don’t have to. However, during this confusing and stressful time, we are going beyond the numbers to help improve your business performance and help drive strategy and direction.
Critical Next Steps
The experts at Signature Analytics are recommending the following next steps to help comply with the PPP and obtain the most significant company benefits:
1. Have a plan. The 24-week clock will start ticking as soon as those funds are received. What you do with the money during these weeks determines your loan forgiveness, so it’s best to come prepared with a spend-down plan for the PPP funds. Signature Analytics has developed a template to help you plan and track funds used.
2. Documentation. Your lender will require documentation to apply for loan forgiveness, so it will be imperative that you carefully track using the funds for qualified expenses. The better documentation and support, the easier the process will be for forgiveness. There are several methods you can use to track your funds. Some recommended ideas include:
Creating a separate class in your Quickbooks file
Creating a separate balance sheet to track the use of the PPP loan
Opening a dedicated bank account used solely for eligible expenses
Review and update cashflow scenarios to ensure they are still valid
The Signature Analytics team can discuss which options will be best for your situation to maintain records to substantiate expenses.
3. Monitor. During the 24 weeks, the actual use of the funds must be carefully monitored. In order to qualify for loan forgiveness, at least 60% of the loan must be used for payroll costs. Keeping in mind that various restrictions need to be considered here for highly compensated employees. It is important to stay diligent on the rules for forgiveness and the tracking of the proceeds of the loan.
4. Be cautious. Loan forgiveness can be reduced if either of the following occurs:
a. Employees who make less than $100,000 (annualize) have their comp reduced by 25% or more may cause a dollar for dollar reduction in your forgiveness amount.
– OR –
b. If the number of full-time employees is equal to or less than the same number from February 14, 2019 to June 30, 2019, or January 1, 2020 to February 29, 2020, among other criteria. The Treasury website has the most current information regarding these criteria.
5. Avoid other CARES Programs. Some programs may nullify participating in the PPP, including the Employee Retention Credit and Deferral of Payroll Taxes. It is essential to get guidance from your tax and HR professional in regards to all areas of the CARES ACT.
6. Consider timing. You will want to maximize the payment of qualifying expenses during the eight-week loan forgiveness window. For strategies on how best to pay your bills, please reach out to the Signature Analytics team for guidance.
7. Don’t misuse the funds. While specific guidelines for misappropriation of funds are not currently available, we do know that business owners using the funds for fraudulent purposes will be subject to criminal charges. Additionally, businesses that misrepresent or do not accurately portray their information submitted may be subject to criminal penalties.
8. Even if it’s not forgiven. You are still left with a reasonably good loan. If you received the loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity. Both options come with a 1% interest with no prepayment penalty. Keep in mind that even though interest and principal payments are deferred for six months, the interest will still need to be accrued during the deferral period for any portion of the loan not forgiven.
9. Contact your lender. Communicating with your lender during this time is a critical step, to ensure both parties understand all of the forgiveness guidelines. Ideally, you will complete the loan forgiveness application found here and submit it to your lender before the October 31, 2020 deadline.
10. Consider the MSLP. The Main Street Lending Program is another new program available for small and medium-sized businesses that were financially stable before COVID-19 took effect. A few of the eligibility requirements include being a U.S. based business with an establishment date before March 13, 2020. You can read more about the criteria through the link below.
It is valuable to note that since the PPP was initially launched, guidance from the Treasury Department has continued to evolve, including signing the PPP Flexibility Act on June 5. This is a very fast-paced pandemic and is requiring government agencies and those who support it to think on their feet and provide businesses with relief fast.
For this reason, the information outlined above may change in response to additional guidance. We will do our best to keep you up to date, and you can always contact us at any time for support.
This article was originally published on 6.11.20 and contains the new program guidelines that were released on 6.8.20. We will continue updating as new information becomes available.
During the last few months, the Coronavirus has created an incredible impact on the world. As a result of this unforeseen occurrence, many individuals and businesses were negatively affected and continue to struggle today.
The Federal Reserve announced in April that a new lending program was in the process of being established for small and medium-sized businesses that were financially stable pre-pandemic. The creation was a result that stemmed from the CARES Act as an avenue to make $600 billion accessible in aid. It complements the aid available through the Small Business Association and other funding options.
Below, we breakdown the essential facts of the program, as well as answer some commonly asked questions our team of experts is receiving. This breakdown includes the newly released guidelines from the Federal Reserve that were announced on 6.8.20.
“Supporting small and mid-sized businesses so they are ready to reopen and rehire workers will help foster a broad-based economic recovery,” Powell said in Monday’s announcement. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period,” Fed Chairman Jerome Powell recently said of the revamped program.
We hope this will serve as a starting point to understanding the plan, but in no way should one financial leader opt to manage all of this information for their business on their own. You can call our expert financial team at any time so we can help you throughout this process. Continue reading for all of the insights.
What Is The Main Street Lending Program?
As mentioned above, the Main Street Lending program is the government’s additional solution to providing funding for small and mid-sized businesses.
For information regarding each of these facilities and answers to questions on the terms and conditions, please visit the Federal Reserve resource here.
Other key takeaways from the Main Street Loan Program update:
The federal research expanded its Main Street Loan Program with a few major changes to allow more small and medium-sized businesses to be able to receive support. The changes include:
Lowering the minimum loan size for certain loans to $250,000 from $500,000.
Increasing the maximin loan size for all facilities (Maximums for each type will be $35 million, $50 million, and $300 million). Loan caps are based on outstanding credit and adjusted EBITDA of the borrower.
Increasing the term of the loan option to 5 years, from 4 years.
Extending the repayment period for all loans by delaying principal payment for 2 years, rather than 1 year.
Raising the Reserve Bank’s participation to 95% for all loans.
The Fed says the facility will open registration to potential lenders “soon.” More details can be found on the Federal Reserve website.
How Do I Know If I Am Eligible?
To participate in the Main Street Lending Program, a borrower must meet the list of criteria below. Most importantly, the business that is attempting to securing the loan must have an establishment date before March 13, 2020, and be based within the United States.
Secondly, eligibility requirements also include having either:
less than $5 billion in 2019 revenues or
less than 15,000 employees.
Non-profit applications should note that a separate program is in the works for their unique circumstances.
A few more eligibility details of importance include:
being a partnership, limited liability company, corporation, association, trust, cooperative, a joint venture (with no more than 49 percent participation by foreign entities); or a tribal business concern
not being an “Ineligible Business” under the Small Business Administration (SBA) definition, as applied to the Paycheck Protection Program (PPP)
not participating in the Primary Market Corporate Credit Facility or receive specific support provided by the CARES Act made available to air carriers and businesses critical to national security
If your business has applied for or already received Paycheck Protection Program (PPP) funds, the Federal Reserve has made it clear these do not make a business ineligible for a loan from the Main Street Lending Program.
How Do I Apply For The Program?
Business leaders can visit or call any U.S. bank to apply for a Main Street Lending program loan. It may be easiest to select where you already have established your banking relationship; however, there are no restrictions.
The bank you choose to work with will first assess the risks and then will offer you an interest rate. Our recommendation is to apply with two separate banks and make your selection based on the most competitive interest rate you are offered. Since bank lenders are now only required to take on 5% of the loan, more competitive rates will become available.
It is important to note that there will be fees associated with your loan, so understanding this upfront can help you make your final decision.
Is There A Limit or Minimum To How Much Aid I Can Borrow?
Yes, there are restraints on how much a business can borrow. Loans offered through the Main Street Lending Program range from $250,000 to $300 million.
Depending on the type of loan, each will have a 5% to 15% risk retention rate. What this means is that for banks, they are guaranteed in this amount by the federal government.
What Else Should I Know About The Program?
We cannot stress this enough, but once you receive your funding and in your account, there is no separation between those funds and your other finances. With that, it is critical to use a tracking method, so you have documentation of where the funds are allocated.
Two Tips From Our Expert CFO’s
Here are two questions to ask yourself or your company’s financial leaders:
Have you developed a 13-week cash flow plan? Even better if you can create a plan through the end of the year. Having this type of cash flow forecast will allow you to plan for all revenue and expenses while still providing visibility to make strategic decisions. Read More:Actionable Advice from Our Founder to Improve Your Cash Flow
Have you gone through the appropriate steps for scenario planning? You likely need assistance projecting your cash needs, figuring out potential profitability, and determining how best to make data-driven decisions. Using the scenario planning model, you can forecast your business results over an extended period. Read More:Your Guide To Financial Modeling And Scenario Planning for COVID-19
If the answer to either of these questions is no, now is the time to get started. We are asking our clients to develop and execute these plans to help them plan for their future as much as possible.
Our CFO team is already supporting these initiatives and are happy to help you dive deeper into the best decisions for your company using limited resources.
Do Not Navigate This Alone
There are many programs designed to help businesses impacted by COVID-19, and this is only one of them. As a business leader, you are a decision-maker in your company, and you must be armed with accurate information to lead your company to success.
You can call us with any questions you have or advice you are looking for while navigating the Main Street Lending program or other programs out there. We also work with a number of banks that are part of the lending program. It is our promise to go beyond the numbers to help improve your business performance and achieve your goals. Our team of experts is ready to help you lead your business into the new normal with funding in your bank account.
“It’s not what you pay a man, but what he costs you that counts.” —Will Rogers
Good business leaders understand that having insight and control over the company costs is vital. Low overhead and a surplus of cash is a recipe for a financially successful business, but when an unforeseen global pandemic steals customers away from your business model, what is your response?
If you are like J.Crew, Neiman Marcus, or Souplantation, the solution is to cut employees loose, shut your doors, and hope that the financial aid from the federal government is enough to pay your essentials bills until the mess dies down.
However, if you are a smarter leader with an insightful team by your side, you can reduce your cost structure and keep your business alive during the midst of it all.
We want to take some time to be that insightful team for you. Below, we highlight the key ways you can proactively reduce and control overhead rather than making severe deep cuts.
During the uncertainty of this current economic environment, there is no better time to address leaning your company. Taking an intellectual dive into the inner workings of your company using the following ideas is one way to evaluate what is working and what is not.
Idea 1: Speak With Lenders
Fostering a better relationship with each of your lenders is one of the first steps we recommend taking during this time. A simple phone call to your banks, credit unions, and other money lenders will help to keep lines of communication open.
Not only that, but it will help you establish a relationship of trust if you initiation the call. When you have the lender on the phone, also be sure to ask about some of the following:
A detailed review of the terms for all your business loan agreements and lines of credit
The option of refinancing debt to extend terms and reduce payments
Ask about reducing interest rates on loans and credit cards
Try requesting a credit line increase for credit cards
Consider negotiating a way to pay only interest on the debt if finances become too tight
You don’t know what the lenders will say until you ask, so try and negotiate the best terms for your business and see what options are presented to you.
Idea 2: Seek Financial Aid
The federal government has been rolling out a variety of financial aid packages for businesses to choose from during the COVID-19 pandemic.
The three large government options available include PPP, EIDL, and Main Street Lending program.
The Paycheck Protection Program stems from the CARES Act as a way for business owners to help pay employee salaries, benefits, company bills, and make other vital financial payments to keep afloat.
The Economic Injury Disaster Loan Program is part of the Small Business Administration’s federal assistance for the private sector. It can provide up to $2 million to small or private businesses and non-profit organizations regardless of whether the applicant sustained physical damage from the pandemic.
The Main Street Lending Program is the newest program announced by the federal reserve and was specifically established for small and mid-sized businesses that were financially stable before the coronavirus pandemic. Roughly $600 billion of aid is accessible for these companies.
Another option is to seek private grants from big organizations. Please do some research on grants.gov or reach out to our team for a few suggestions.
Idea 3: Review Your Contracts
This might be one of the easier ideas on our list! With that, you should make efforts to understand how your business is using the space you are in and how it might need to expand or trim in the future.
If your lease is nearing its end, consider this as an ideal time to renegotiate on the original terms. Some options include subleasing the space, taking over a new and less expensive commercial real estate location, or taking advantage of a shorter-term lease from your landlord.
Idea 4: Boost Incentives
Now more than ever, your customers have a reason to zip up their wallets and pour over their credit card billing statements. The best thing you can do to ensure your services are billed continuously is to show their value. If your customers understand why they need your products or services, then you are appealing to the financial side of their rationale.
Once you feel you have established a customer relationship based on trust and necessity, consider rewarding or incentivizing them by discounting early payments, offering special pricing on new product launches, or giving coupons to loyal customers.
You can expect that each of your customers is struggling in their own way, and so your overall goal is to ensure they feel valued and that you are continually providing real value. Take this time to look beyond the numbers and understand your customer’s business strategy and how you can further support them in reaching their goals. Need more help in this area? Call our team of experts for even more advice.
Idea 5: Look Beyond The Obvious
Unfortunately, one of the first places scared leaders will choose to cut back is by way of their employees. We don’t believe this action is the ideal way to reduce your cost structure.
Layoffs are harmful to the remaining employee’s morale and productivity. They are working in fear rather than working to continue the mission of the company.
While there are times when addressing your labor force is a crucial factor for your business’ survival, it is crucial to look beyond that channel at the beginning. Before heading down the path of layoffs, consider these other roads first:
-a reduction to working hours
-decrease or eliminate bonuses and performance pay
Consider modifying the benefits and compensation plans as a way to minimize costs. Ultimately, many of these considerations will positively or negatively impact your business. Think through your plan and communicate your strategy with your other business leaders before taking action.
With the right information, leadership, and choices, reducing your business’s cost structure doesn’t have to be incredibly painful. The best outcome is when you can lean out, keep your incredible team, and envision a successful future.
Remember, communication is essential during this time. Answer all the questions, quell all the fears, boost everyone’s morale, and be as proactive and transparent as possible.
If you are looking for more ideas on how to trim down the excess costs of your company and how to recession-proof your business, you can read one of our most successful blogs linked below.