The government’s Paycheck Protection Program (PPP) from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides much needed relief to small businesses across the nation to keep workforce employed and businesses afloat. You may have already applied for the loan and are currently waiting for your bank to fund it. Now would be a good time to get up to speed on the requirements of the program, the credits available to businesses, some questions to ask your accountants, and our recommendations on how best to handle the funds. We also have recommendations on ways to accelerate cash flows from customers and defer payments to vendor during this crisis.
Paycheck Protection Program (PPP)
When the loan is funded, it is best to have the proceeds deposited into a separate bank account so that disbursements from the proceeds can be easily tracked and substantiated.
When figuring out the loan amount for the PPP loan, any salary over $100,000 per employee is excluded. This is crucial because it affects how much of the loan proceeds can be forgiven. For the highly compensated employees (mainly the business owner and senior management), what does this mean for their compensation?
The essence of the PPP is to keep workers employed so keep an eye on your head count as it would have an impact on the amount of the loan that can be forgiven.
How do you make sure that your PPP loan is forgiven? What documentations is a business required to provide to substantiate the use of proceeds?
The program provides for deferral of employer’s share of the payroll taxes. If a business received a PPP loan and paid its employees with the proceeds, when is it required to remit the employer’s share of the payroll taxes? Have you reached out to your payroll processing company to understand whether they have the capability to remit the correct amount of payroll taxes on your behalf?
The CARES Act also provides for an employee retention credit at 50% of the first $10,000 wages per employee. Am I eligible to claim the credit?
Can a business use tax-exempt income (e.g. forgivable PPP loan) to generate deductions (e.g. payroll, mort int, rent, etc.)?
Cash Flows Management
Be proactive and contact your vendors. Those who were rigid in their payment terms in the past may be accommodating due to current crisis. It is important to maintain supplier relationships, avoid unnecessary turnover and continue to meet customer demands.
Contact your customers to ask for payment even though most businesses have been negatively impacted by this pandemic. Accept partial payments and offer payment discount to entice customers to pay in full if they have the ability.
Call credit card companies to inquire about delaying payments and interest accrual. Most credit card companies are willing to make accommodating during the current crisis.
Consider reducing discretionary expenses, such as certain advertising and marketing expenses when your target customers are also negatively impacted by this crisis, client meals/entertainment, etc.
Consider pay cut to ownership and senior management instead of reducing workforce so that you are able to meet customers’ demands when the turnaround occurs.
Having a trusted advisor on your side could mean keeping the train on the tracks and avoiding surprises. Contact us if you have questions on your mind.