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How about some "meat and potatoes" of what you can be doing now? Simple bullet points of issues and opportunities to address with you as an individual and with your business during the virus challenge.
Please note the disclaimer; I am not an attorney, Certified Financial Planner, Certified Public Accountant, or licensed in any area of insurance. These are observations by a small business owner shared with other small business owners. We have been reading a lot of material and speaking with experts, however what we are sharing comes from what we understand. Before making any decisions, we strongly suggest you speak with a trusted and qualified individual.
As we research and talk with various experts, in private practice and within the government, we have found components where there is conflict in the information shared. That is another reason why we suggest your speaking with a trusted and qualified individual.
We also suggest for these advisors that have an hourly rate, if you have been a long term client, you ask them to contribute a few minutes of their time to answer questions. All of us have to give during this challenge.
1 Making the decision
2 Protecting yourself and your business financially
3 What can you change?
4 Marketing - yes, we should be selling in one form or another
5 Links to help
1 Making the decision. This is a valid question; "Are you going to stay in business when this is over? Or is this an opportune moment to close permanently? You have to make the decision, but consider these possibilities.
If you close the business, you are not likely going to get full price for inventory and you will sell fixtures and equipment for scrap. If you decide to sell your business, I would anticipate the price you get will be depressed and the "good will" you get in selling a business now would be diminished.
This is a good time to do a bit of research and determine how much it takes to make your business profitable. We have a free calculator on the Profits Plus website. Follow this link: Profits Plus Break Even Analysis Calculator
2 Protecting yourself and your business financially. Many times a business owner is required to give a personal guarantee. It could be a guarantee to vendors, landlord, bankers and other lenders. The guarantee means if the business goes under you are personally responsible for the money the business owes. Make a list of where these guarantees have been given.
Are you married or have a business partner? Did you give the guarantee as an individual or with your spouse or partner? If you signed the guarantee as an individual and some asset is owned with your spouse, there can some protection because of the joint ownership. With the partner, if the partner were to declare bankruptcy, then you are left as the only one with the guarantee.
Looking forward, what is your legal business entity? Is it giving you the most protection? Do you need to make a change? We continue to suggest Entrepreneur's Guide to Forming a Small Business Entity by Michael McCormick as a great book to read.
Do you have a 401k? IRA? Own a home? What does your state or province offer as protection from creditors? Do you own the building your business is located in or other buildings?
If you have a lot of equity in the building, can you get a loan to access that cash to keep your business going? Do you need to get the cash out of the building to protect you from potential creditors?
You can borrow up to $100,000 from your 401k or IRA without penalty under the CARES Act. Stipulations of qualifying for the withdrawal include having the virus, or as an individual having experienced financial loss. Owning a business that has reduced hours or closed also qualifies. Taxes will be due on the withdrawal and can be paid over three years instead of just one. The concern here is when the market returns you are not going to have as much money in the retirement fund and this could hurt you in later years.
Do you have whole life insurance? You may be able to borrow from the equity in the policies. There are no taxes or penalty to be paid on the withdrawal. However, the loan from the policy does have an interest rate. Do not borrow so much from a policy that the interest being charged causes the policy to default. If the policy defaults, you are likely to have a tax bill on the gains that policy has had over the years.
The IRS has delayed the tax return deadline for 90 days. Check your individual state to see if they have made changes.
SBA emergency loans are $10,000. Fill out the paperwork and you should receive $10,000 in your checking account. The money is said to be sent within three days of your completed application. The money is an advance on a loan, however you do not have to go any further to get the loan. You can quit at that point and keep the $10,000 as well as not have any taxes on the $10,000.
If you want to go forward with the loan, the amount you can borrow is 250% of your average monthly payroll. The payroll includes all employees and yourself. The one catch is that anyone making over $100,000 a year has a cap on their pay. When you borrow the money, there is an easy calculation of how much of the loan you have to pay back. You get to deduct payroll, (meaning you have to keep employees), benefits, rent or mortgage, utilities, and interest on debt.
As an example, let's say the calculation shows you can borrow $25,000. If you got the $10,000 emergency loan, you are going to receive the balance of $15,000 when you are approved for the loan. If the qualifying expenses, like those we just described, equal $25,000 then the entire loan is forgiven.
Payroll is a bit complicated as there is another act, FFCRA (Families First Coronavirus Response Act) comes into play. Definitely before you issue paychecks or lay off anyone you need to understand this. We have spent the weekend reading as much as we could find about FFCRA. However, there are so many conditions that are interwoven, we are easily lost in the information. One part we do see consistently in these reports deals with your business being exempt if you can show that continuing to pay employees would risk your going out of business. We also see a component of when you are required to keep employees that you get a tax credit for doing so. If the payroll is larger than the tax credit, then the IRS is working to create something that will repay you. As of today we understand that has not been resolved.
While there are more components to these acts, the last one we will touch on is the situation where your business operated at a loss in 2018, 2019 and 2020. You can now carry that loss backward for five years and forward indefinitely. What does that mean? If your business had a tax bill in the last five years and you have a loss in any, or all, of these years, you may be able to get a refund as the loss is applied against those profitable years.
3 What can you change? Look for lots of little details in expenses; frequency of garbage pickup; if you have fluorescent lighting, there is a savings in electricity only if the ballast is disconnected or removed - removing the bulbs saves you nothing.
Are you providing worker's compensation insurance for yourself? As you are likely having the biggest salary, your state may allow you to remove yourself from this coverage. This insurance provides pay when someone is injured. If you are going to pay yourself if you are injured in your business, why would you insure yourself?
Look at the insurance on your inventory. Many policies have a seasonal fluctuation clause meaning the dollar coverage can fluctuate over the stated amount. With some policies this is as much as 20%. If so, you consider not buying insurance on the highest amount of inventory you have, but on 20% less.
Look at your insurance policy for a business interruption clause. Some policies have coverage for situations that the business owner did not cause or situations where the business is the victim. It is often referred to as "act of God" coverage. The same goes for your lease as it may have a similar clause that would provide you with a temporary stoppage of rent payments.
Shop your insurances. Not just asking your current agent about a savings but talk to an agent that represents different companies.
Consider asking software companies for a temporary stoppage of lease and support fees. They don't want the equipment back and they don't want to lose a customer. Do not agree to extend a contact for these concessions.
Need to have a vacation from your building lease payments? You can ask for this. With the landlord, as with anyone else you owe money to, tell them about the cuts you are making elsewhere and give some details of the changes you are making. They will more easily work with someone that has a plan than someone who is just hoping to survive. They also want to know they are not the only company you are asking for help.
If you are going to be late in paying invoices, negotiate that you pay no late fees. I have already seen vendors sending letters to their suppliers saying they are going to be late on paying invoices and they are not going to pay late fees.
Do you have employees that would volunteer to take part time work or want a leave of absence? Look at the provisions of the new CARES Act. Also note the poster provided below in the link section.
4 Marketing - yes, we should be selling in one form or another. Perhaps the first question is whether your business is being declared "essential" and allowing you to be open in one form or another. Each state sets their own rules and we have already seen an association that has sued states that have declared their members "non-essential" in an effort to keep their member's businesses open.
We are also seeing commentary articles about public push back against open businesses stating these businesses care more about sales than they care about the well being of their community. We think handled properly you can get some business as well as a lot of goodwill in your community.
I live in a community where a Facebook page has been created to help those with health challenges and are over 65. It is a place for people to ask for assistance, like getting groceries or driving someone to a doctor. In a town of 4500 residents over 900 are a part of the group. Your local business could create something like this.
Similar to the bear hunt game we have seen on Facebook for kids, we have seen customers of businesses in the sewing industry put quilt squares in their homes to get the customers to drive around and look for the squares. The business made it a contest and is giving prizes to customers who find the most quilt squares.
Similar to the banner recognizing blue star families for those serving in the military, we have seen uniform retailers create a recognition for those who are nurses, first responders and others in the medical industry. In each of these examples a business has found a way to engage their customers.
Then we have the retailer who wrote a wonderful note on Facebook about why her business was open. She said she had customers saying, "How is it you are still open? Your life is worth more than a sale. Stay home", and other similar remarks.
Her answer had two points. The first was that the business was "her baby". If the business was going to fail, it was going to happen knowing she did everything she could. The second answer was that her business provided a sense of comfort, security and calm. Perhaps people were panic buying in grocery stores because many things were now out of their control. Allowing a small number of people to come into her store allowed individuals to feel there were some aspects of life that remained in the normal mode.
5 Links to help. Information about places to look for help and things you need to know.
America's SBDC - The folks who were our guest experts on the March Small Business Conversations show. You can get an advisor to help you with details of working through this. Some state SBDCs are offering free online webinars on how to apply for the loans and grants we have mentioned. You do not need to be paying some consultant to help you when the SBA is available at no cost!
The Department of Labor has a new poster regarding employee rights and deals with sick leave and the virus. Our understanding is you have to post this along with those other required insurance posters in your business. Here is a link to a PDF of the poster. FFCRA poster
The SBA disaster loan page Here is where you apply for the loans we have described.
Department of Labor's Q&A of the Families First Coronavirus Response Act
Our compliments to two trade associations we have noticed are very aggressive in working to help their members. DEMA (diving industry) and BRA (skate and surf board retailers).
Working with DEMA, we have volunteered to create a free webinar they are distributing to those in their trade. We are currently volunteering with another dozen associations to create a webinar for their industry. The SBDC will also be distributing a webinar we have volunteered to create for them.
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DECEMBER 2024
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With over 25 years of frontline experience Tom Shay is America's leading Small Business Management Expert. He's a "Must Have" for your next event.
Small Business
Whose job is this, anyway? Have you heard that before? The December Small Business Article of the Month offers ideas from those who have found solutions.
Small Business
Past our announcement that the December newsletter starts our 26th year, we are discussing what is and what is not a problem.
Starting with, all these announced closings of retail operations is not a problem indicative of retail. It is an indicator of chain stores trying to correct the problems they previously made.
We came across a solution of tasks not getting done as well as tasks not done correctly. We created an owner's manual for our business. Details in the Article of the Month.
Atomic Habits by James Clear. Have you ever caught yourself saying that you had gotten out of the habit of doing something? Perhaps it is something you need to continue to do? This book can be applicable to personal and business life.
