7 Cash Considerations in Challenging Times

We are living in unprecedented times; learning and adapting every day without clarity as to what the future may look like. In the midst of the uncertainty, it is as critically important that business owners lead and make wise decisions.

It has long been said that “cash is king”. Certainly in the midst of any economic struggles, this is particularly true. Cash is the lifeblood of a small business. Poor cash management can fast track a business’ end no matter the how great their product or service offerings.

Here are 7 cash considerations we recommend that your small business consider when trying to lead with certainly during uncertain times.

1. PPP loan – Businesses have heard that the US Government established the Paycheck Protection Program loan backed by the SBA. The initial round of funding was $349 billion and a second round of funding of $310 billion is awaiting President Trump’s signature.. You can find more about this program by reading here. If you did not have success in round one in receiving funds, we recommend that you act fast in round two. This program is designed to help cover your payroll and related compensation benefits for two months, along with some additional funds to help with rent/mortgage interest, and utilities.

2. Request a rent deferral – There are certainly are no promises that any rent deferrals or abatements will be obliged by your landlord, but it is safe to say they will more than likely not call you up to volunteer one. Be proactive. Be realistic and honest. Some businesses have a long history with their landlord. If you have received a PPP loan, consider the proper timing to ask for any deferral so you can properly use the debt forgiveness portion of the PPP loan.

3. Request a deferral on bank debt – Using the same thinking as the rent deferral, you need to approach the bank to request relief. It has been reported that many financial institutions are granting 3 months of deferred payments.

4. Utilize FICA deferral – Beginning March 27, the US government is allowing employers to defer their employer portion of FICA (Social Security and Medicare). The deferral starts with payroll after March 27, 2020 and runs through either the date the PPP loan is forgiven or December 31, 2020 if a PPP loan was never received. One half of the deferred amount is due December 31, 2021 and the other half is due December 31, 2022. There is no interest charged on this deferral as long as the payments are paid in accordance with the time table set above.

5. Consider PPP loan alternatives– Although for many small businesses the PPP option was the best alternative, not every business was either qualified or was able to receive the funding. Here are some alternatives that should be considered or reconsidered if a PPP loan is not obtained.

• EIDL loan – This loan program works significantly different than a PPP loan. There is no forgiveness part of this loan. The length of the loan can be significantly longer than the PPP loan portion. This loan is directly through the SBA. Here is a link that gives you some additional insight on this program.
• Employee Retention Credit – If you are maintaining payroll through this time and are not using the PPP loan, you need to look into the benefits of this program to your business. There are certain qualification you need to meet to take advantage of this credit, you can read more about this program here.
• Main Street Loan Program – This loan was also created under the CARES Act passed on March 27, 2020. This loan cannot be combined with the PPP loan. There is no forgiveness portion to this loan. It is designed for companies with between 0 – 10,000 employees. The loan amount could range between $1M and $25M with a cap generally at 4X EBITDA. There are no payments (principal and interest) for the first 12 months. The length of the loan will vary.

6. Accounts receivable / accounts payable – Proper management of A/R and A/P is always critical to cash management. Although there is nothing new under the sun here, there are a couple of reminders.

• Don’t just assume that a slow payment is due to a lack of cash flow from your customer. There is a high probability that an invoice could slip through the cracks, as many have moved their accounting offices to at-home offices.
• There were businesses that were holding on to cash as they waited for their PPP loan. Many now have received their PPP funds, which will allow them to pay vendors they were holding back.
• Applying the axiom the “squeaky wheel gets the grease” can prove to be beneficial.

7. Utilize tax losses – The CARES Act expanded the capability of utilizing tax losses to convert into cash when looking at losses from either the tax year 2018 or 2019. Because of the new tax laws included in the TCJA Act passed in 2017, there were many business taxpayers who reported a tax loss in 2018. You need to consult with your tax advisor to see what options, if any, exist to help turn these losses into cash.

8. Develop your 13- week cash flow model now – Utilizing a cash flow model can become essential when managing through a cash crisis. If maintaining these were easy, everybody would use them. They do require a significant amount of time to properly maintain. We also recognize that some business models are easier to forecast revenue and expenses. Despite their challenges to maintain and predict, this tool remains at the top of the list for financial institutions when working with a business during a cash crisis. Our recommendation would be that you set this up now. Here is an article that discusses this tool in more depth as well as providing a template to create your own.

Helping our clients gain clarity on accounting and tax matters has been at the core of Clayton & McKervey for over 60 years. If you have any questions or would like to discuss your business, please contact us.