How to Stay in Business During the COVID-19 pandemic
Wow. A lot can happen in a month. Just a few weeks ago, we were looking forward to the end of winter and the beginning of spring. Year-end reports for 2019 were finished and everyone was settling into the rhythm of 2020.
And then the Coronavirus hit.
Many businesses were ordered to shut down to help stop the spread of the virus through person-to-person contact. Other businesses had to adjust their business model to adhere to governmental guidelines for social distancing. With so many businesses closing or slowing down operations, employees were laid off and families’ incomes were cut dramatically or disappeared altogether.
So what is a small business to do?
Cash Reserves
If you’ve been reading my blog any length of time, you know that I recommend having cash reserves of 3-6 months of expenses. If you have that cash on hand, great! Use it to continue to pay your essential expenses in full and on time. Your vendors are in the same position as you. Paying them in full will help them to continue running their business as well. If you do not have that cash on hand, read on to see what you should do.
Revenue
Let’s start with revenue, which is the money you have coming in. Look at your client or customer billings. We want to know the exact amount you expect to see deposited into your bank account, not what you hope will come in. Look at what you have actually billed everyone and what you actually expect to receive, realizing, of course, that your customers and clients are in the same position you are.
Expenses
Next, look at your expenses for the month. Do not go spending any money on new projects, new equipment, training, or any other non-essential item. Essential items include payroll (for employees and yourself), rent/mortgage, utilities, subscriptions needed to accomplish your work, and any other expense that is absolutely necessary to produce your product or service.
If you find you do not have enough cash coming in to pay all of your expenses, call your vendors and negotiate as much as possible. Ask if you can pay them a portion of the amount now and the rest once businesses open up again. Cancel any subscriptions you don’t immediately need. Find any way you can to either reduce or eliminate that particular expense. And remember that these changes are temporary. Once things are back to normal, you can resume your regular way of doing things again.
CARES Act Loans
On March 27, 2020, congress approved the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that authorizes over $2 trillion for small businesses affected by the COVID-19 pandemic. As part of this provision, they created the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan program (EIDL). These programs are administered by the Small Business Administration.
For detailed information about these programs, you can visit the SBA Coronavirus Relief Options page and Startup Junkie Disaster Loan Guide.
Now, before applying for one of these programs, there are some things you should consider.
If your business has the cash on hand to continue operating, then you should not take out one of these loans.
These are LOANS. Not grants. Yes, the PPP says your loan will be forgiven IF you spend the proceeds on payroll, rent or mortgage interest, and utilities. I recommend creating a new account on your books specifically to track the use of PPP proceeds. This will provide a good paper trail when it comes time to prove your loan should be forgiven.
Any loan made under the EIDL, SBA Express Bridge Loans, or SBA Debt Relief programs is not forgivable. You will have to repay the entire amount they give you plus some interest.
While I still don’t recommend taking out loans if you can help it, I do sympathize with the conditions we are all living under. Do not let fear or panic cause you to make a decision now that will cause more harm later.
Navigating these new business conditions is difficult. You need me now more than ever, and I want to help you now more than ever. Send me an email or give me a call and we can talk through which options would be the best for you and your business.