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  • Ambrose Kalmbach

10 Things to do in the COVID-19 Recession

Whether or not you have or will receive PPP cash, we all need to adapt to these crazy times. While some of the suggestions below may seem obvious, if you do not think about and execute them, then you have NOT done the obvious.


1. Defer Bank/SBA Loan Payments: Given the COVID-19 environment most banks will defer loan payments if you just ask. But you have to ask. If you have an SBA loan, the SBA will automatically make up to (6) principal and interest payments between 3/27/20 and 9/27/20 on your behalf. But you have to stop making your regular payments or you will double up. If you make ACH automatic payments, you have to take action to stop them.


2. SBA $25K Express Bridge Loan: If you already have a relationship with an SBA Express Lender, contact that lender to get this fast-turnaround cash. You can pay it back over time or from EIDL cash (if you get an EIDL loan).


3. Do NOT Overload on Debt: But, there are many easy ways to borrow cheap, crisis cash. However, if your company struggled before coronavirus, can it really operate afterward with new debt on top? Take a minute to figure out how much debt your business can pay off in the future. Shutting down may be better than struggling until the business dies, leaving you staring at newly enlarged personal guarantees. Instead, research and apply for state-sponsored grants and forgivable loans (essentially grants) or for industry-specific grants.


4. Talk to Your Landlord: Have the tough conversation with your landlord to request rent abatement. Even relief (all or some) for 3 – 4 months can make a huge difference. Your landlord may have received PPP cash and be willing to allocate some to your rent, but you better ask fast before your landlord runs tight on cash.


5. Embedded Expenses: Comb through your credit card and bank account statements searching for those pesky monthly recurring transactions that just automatically occur every month without anyone thinking about them. No one monitors embedded expenses, so they endure long after their original purpose, e.g.: the monthly satellite radio charge for the truck you traded in two years ago, or the monthly lead generation software license fee that your previous sales rep insisted upon. Embedded expenses are just little vampire bats hanging off your P&L.


6. Go ACH instead of Credit Card: Many customers will let you auto-draft their accounts if you just ask, especially for recurring amounts or bills (think: rent, monthly service fees, etc.). Yes, this puts you on the opposite side of embedded expenses, but that is OK. You can initiate the transactions from your bank’s website or from within QuickBooks via several add-in apps. Getting paid by ACH origination can be much cheaper than paying merchant credit card fees, and is much quicker and more reliable, but requires a little setup work on your part.


7. Do NOT Defer Payroll Taxes: A CARES Act provision allows deferral of employer Social Security tax (6.2%, also known as OASDI) on wages paid between 03/27/20 and 12/31/20. But many companies have bankrupted because of accidental (or purposeful) failure to pay federal payroll taxes. If you cannot pay the payroll taxes, do not pay the payroll. While deferring payroll taxes is tempting, the IRS is NOT a friendly creditor.


8. Waste NOT Your PPP Cash: Everybody is myopically focused on getting all their PPP loan forgiven. Unfortunately, many companies will struggle to meet the 75% Payroll Costs requirement, because they either cannot keep up their FTE count or they have had to cut gross pay. If you have wise business expenses, undertake them whether or not they are PPP forgivable. But remember, if you do not spend PPP cash, you get to keep it (for a while, at 1%). Do not keep all your employees on payroll, just because Payroll Costs are PPP forgivable. If you do not have the work, do not keep paying people. There is no value in sweeping the warehouse floor for the fourth time today or washing trucks just because they are still on your lot. Remember: Cash is King!


9. Determine Your Survival Strategy: Your goal should NOT be to spend all your PPP cash. Your goal should be exiting the crisis WITH cash. There are four basic survival strategies:

a. Maximize Forgiveness – Front-running favorite, but not a cash conservation approach.

b. Maximize Employment – Uncle Sam’s request, but possibly not an efficient use of your eco-system cash.

c. Maximize Take-home – Perhaps your employees’ favorite, but guaranteed to deplete your cash.

d. Maximize Eco-system Cash – Likely to be the rear-view mirror favorite

You must carefully consider and choose which strategy works best for your business’ eco-system.


10. Maximize Your Eco-system’s Cash: Your business eco-system includes you and your employees. Just remember: all the cash in your eco-system does not have to come through your business. Given the new, extremely generous unemployment benefits you can reduce the drain on your cash by helping your employees get significant cash through unemployment. Through careful planning you may be able to keep them associated with your company and receiving benefits, while keeping virtually the same take-home pay; just not out of your business account.


April 30, 2020 © 2020 - MicroCFO, LLC

www.MicroCFO.com 704-643-4643

AmbroseKalmbach@MicroCFO.com

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