How to Stay in Business During a Crisis
Times are tough. No doubt about it. Restaurants, bars and hotels are extremely hard hit. So what can you do to keep a float during this crisis? So here is my list of some things to keep in mind to help you get through this. This is not the be all, do all list so make sure to do some reading (online or off). At the end of this blog post, I will put in some links to other sources who can help.
Cash is King
The first tips is also the hardest to implement. Cash flow is the lifeblood of a business. Now, more than ever, cash is what is going to keep your business alive. I highly recommend sitting down and just sketching out what your expenses are. Consider everything – even what you (and any other owners) need to take out of the business to pay your personal expenses. Add in some amounts to cover contingencies – like the extra cost of rush shipping of necessities. Don’t forget expenses you pay once or twice a year, you need to look at them too.
Finally, figure out how much taxes will be due on the income (to include payroll taxes on wages paid). Let me emphasis how important it is to not forget taxes. Taxes may not crush you now but long-term it can cause other problems down the road.
The idea with this exercise is to get a very good handle on how much you need to keep going. Now that you have this handled you can focus on what you need to bring in to pay the bills. Don’t be optimistic. Don’t be pessimistic. Be realistic. What do your sales look like and how soon does it take to collect on sales? Remember that sales are good but getting paid is paramount. So think of ways to encourage both the sale and quick payment.
I am not a business consultant so I won’t go through a litany of things you can do to increase cash in and decrease cash out. Be creative on making sales and collections but don’t forget that you need to earn enough to pay the bills. So don’t discount too deep or you may run yourself into bankruptcy court.
You May Need to Look at Negotiating with Creditors/Landlord
I am not an expert in negotiation so I won’t pretend. I will say that if you need to preserve cash to make it through then it may pay to talk with your creditors and landlord. A failed business means a deeper hole for the creditor and landlord, who will collect little in bankruptcy court. So there may be a middle ground where you can meet. A longer repayment term. Some debt forgiveness (though beware of tax consequences) possibly. A reduction in interest rates. Again, be creative.
Take a look at any contracts or agreements you have signed. There may be relief available within. I know you are not a lawyer (though you may be) so don’t be afraid to ask for help. I suspect many business lawyers are handling matters like yours. They may be able to help you find terms or provisions you can use in negotiation.
I can only recommend that you get your paperwork in order. Have up to date financials so you know how much relief you are going to need. You may even need it to show the creditor or landlord the seriousness of your situation. I say that with trepidation as I know for many people their business’ financial information is private. These are unusual times. You may need to share that information to keep the business running.
Remember that your business is not just your concern. Other businesses are trying to survive as well. This means that if your business fails it could be a huge hit to the bottom line of your creditors or landlord. This may help you negotiate something fair that helps you get through. Just remember to be fair to them as well.
Consider SBA or other Bank Loans
Listed below is a link to the SBA website where you can find information on the SBAs Paycheck Protection Program (PPP) and Economic Injury Damage Loan (EIDL). These loans are not yet fully launched, so I won’t provide details as they may change when the program is finally rolled out. Many of the accounting firms in my area are gearing up to help clients. If you have an accountant make sure to talk with them about your eligibility. If you don’t then I highly recommend talking with one. A loan could be a lifeline for your business and so you want to make sure you put your best foot forward to get the most money on the best terms.
A word of warning! Many scammers are out there, ready to rip people off. I would be careful of any emails or online websites offering these loans. Be careful who you trust! It is unfortunate that during this crisis we have so many who are trying to steal from the needy. Additionally, be careful of folks you know who offer to help you get a loan for a fee. As of now, I believe that no fees can be charged to get you a PPP loan. You can be charged a fee for obtaining a EIDL but I believe their is a cap on how much (around $2,500) unless they submit a request from the SBA for a larger fee.
Finally, talk with your local bank or credit union. They are often most affected by small business failures in their community. Likely the local banks are putting together loan programs that can help you. So make sure to reach out to the local banks to see what loans you may qualify for. Not to give short shift to larger banks, some may have their own disaster loans. If you have a chance, take a look to see if something may be available there.
Here are some resources that you can look into for more information.
- IRS Coronavirus Tax Information: https://www.irs.gov/coronavirus Lots of good information on tax credits and tax relief for small businesses
- SBA Disaster Loans: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options A listing of loan options for businesses during the pandemic
- SCORE Business Assistance: https://www.score.org/coronavirus SCORE mentors may be able to help you reorganize or consider other options to keep your business operating.
- Berry Dunn CPAs: https://www.berrydunn.com/covid-19-resource-center A very good CPA firm in Maine has a great set of resources and some analysis of recent tax law changes.
- Eaton Peabody: https://www.eatonpeabody.com/covid-19-an-update-from-eaton-peabody/ Another very good firm, this one a law firm, and more resources.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your IRS tax problems, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.
James D. Wade, Esq.
Law Office of James D. Wade
57 Portland Road, Unit 3
Kennebunk, ME 04043