The COVID-19 outbreak and resulting season of uncertainty has exposed so much about how we live our lives and run our businesses. So many small business owners are suffering because they didn’t have sufficient savings to make it through this unimaginable interruption in sales. And they didn’t have the financial reports and documentation necessary to submit applications for financial relief.

Financial Tracking

Now is the time to implement systems to organize financial information and implement systems that make reporting easy. The IRS and state government, lenders, and investors are generally interested in total figures (total revenue, total expenses, net income) and the ratios they can calculate using those figures. As a business owner, it is important to keep detailed records of the money that is flowing in and out of your business. The more details you have, the better you’re able to make decisions and pivot when necessary. In addition to tracking totals and specific expense categories, I like to consider expenses in three larger categories: fixed, firm, and flexible.

1. Fixed - These are the expenses that you have a contractual obligation or commitment to pay to operate your business. You pay the same amount at the same time each month, quarter, or year.  Think: rent, insurance.
2. Firm - These are the expenses that you incur regularly to operate your business, but the dollar amount or timing changes based on how much you’re selling or what your seasonal needs may be. You may have a month-to-month agreement for these expenses, however you can change the agreement at any time. Think: staffing, supplies, subscriptions based on usage.
3. Flexible - These are the items and activities that enrich your business and make your work easier and more enjoyable. Think: meetings/meals, client gifts.

Considering these larger categories allows you to make changes in your spending as cash flow changes. Ordinarily, flexible expenses may be eliminated completely, firm expenses minimized, and payments for fixed expenses must be made to avoid penalties. However, at this time, I suggest speaking to vendors and creditors to learn what types of concessions they’re offering.  If you don’t currently have a system that tracks expenses in these larger subcategories – consider implementing such a system to remain aware and nimble in the future.

Financial Reporting

I advise clients to prepare and review an Income Statement and Balance Sheet at least monthly. Generally, small business owners get more benefit from preparing cash flow projections than analyzing a Statement of Cash Flow.

I suggest business owners keep a list of these key figures at their fingertips:

• Automatic payments or renewals with due dates. (fixed)
• Monthly operating cost. (Fixed + firm + flexible + payments to the business owner + debt payments) The additional items are typically reported on the Balance Sheet.
• Minimum cash requirements. (firm + fixed)
• Break even sales target (how many products/ service packages you must sell and collect payment from customers to meet your minimum cash requirement)

These numbers change, so I recommend you update the list when preparing the budget and half way through the year. If your cash flow is seasonal, it is helpful to update quarterly or every other month. 

PPP Reporting

The PPP loan forgiveness application was released on May 20. Businesses who received PPP funding will have to report:

• payroll costs, 
• mortgage interest payments, 
• rent or lease payments, and 
• utility payments. 

Use the same definition of payroll costs to determine PPP loan eligibility to track those costs. Utilities include electricity, gas, water, transportation, telephone, or internet costs. Be sure that your financial tracking method allows you to separate spending of PPP funds.  Let me know if you need help.

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There is so much information circulating for coronavirus related financial assistance for different types of business, but we felt that there wasn't a comprehensive list of resources that benefits all individuals, including non business owners.  

Please use this listing to find out if you’re eligible for financial assistance during the pandemic. All the links take you directly to application pages. We hope you find this list helpful!

** Updated 5/22/2020: PPP Forgiveness Application
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** Updated 5/12/2020: see RVA Small Business Grant 
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** Updated 4/22/2020: The number of US Small Business Association (SBA) approved lenders tripled in two weeks. Collectively, those lenders processed more loans in 14 days than had been processed in the last 14 years! It’s no surprise that on April 16, the program ran out of money. We expect that the second round of funding will be announced soon. Here’s what you we suggest you do to prepare for round two (see PPP, EIDL and Additional Resources).

 Recovery Rebates - coming soon to everyone 

• Automatic for most taxpayers. No further action is needed by taxpayers who filed tax returns in 2018 and 2019 and most seniors and retirees. Non-filers can enter their payment preference info in the link at the bottom. 
• The rebate will be sent in mid-April
• You must file a tax return for 2018 or 2019 to receive the rebate, unless you’re a Social Security or Railroad Retirement recipient
• The IRS will direct-deposit the money into your bank account or mail a check to the address of your most recent tax return. 
• You will not receive a rebate if you:
  • Don’t have a valid social security number
  • Are a non resident alien
  • Can be claimed as a dependent on some else’s taxes 
  • filed Form 1040-NR or Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for 2019.
  • Are considered a high income filer:
    • $99,000 for single or married filing separately
    • $136,500 for head of household
    • $198,000 for married filing jointly
• You will receive the full rebate if you earn:
  • $75,000 or less for individuals
  • $112,000 or less for heads of household
  • $150,000 or less for couples
• You will receive a reduced rebate if you earned more than the income threshold, but less than the high income filers.
  • Rebates are reduced by $5 for each $100 above the threshold
• The full rebate amounts are:
  • $1,200 for individuals
  • $2,400 for married couples
  • $500 for each eligible child 
• IRS will send confirmation letters to your last known address 15 days after making the payment

For complete info on the rebate, visit here.


 W-2 Employees who are no longer working

•  You can file for Virginia unemployment payments and receive between $60 and $378 for up to 26 weeks.
• You must be out of work for at least one day before you file.
• When you’re approved, you will learn what to do each week to get payment, how much you will receive, and a PIN to claim the benefits.
• You may receive an updated benefit letter with an additional $600 per week for up to 39 weeks.

 W-2 Employees who are working less

•  You can file for Virginia unemployment payments and receive between $60 and $378 for up to 26 weeks.
• You will only receive payments if your gross earnings are less than $378 per week with your reduced hours. 
  • Example 1: You earn $15 per hour and your hours were reduced to 20 hours per week. Your gross earnings are $300 per week ($15 per hour x 20 hours per week). You will receive $78 per week.
  • Example 2: You earn $15 per hour and your hours were reduced to 26 hours per week. Your gross earnings are $390 per week ($15 per hour x 20 hours per week). You are ineligible for unemployment payments.
• When you’re approved, you will learn what to do each week to get payment, how much you will receive, and a PIN to claim the benefits.
• ​You may receive an updated benefit letter with an additional $600 per week for up to 39 weeks.

Gig workers, Independent contractors, Self-employed individuals 

Previously Uncovered Workers in Virginia 

• You must first apply for traditional unemployment benefits. If found ineligible, you will be contacted by phone on how to submit additional information to complete the claim under the new guidelines.
• You may receive between $660 and $978 for up to 39 weeks.

  
Business Owners and Independent Contractors/Freelancers/Gig Workers

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US Small Business Association (SBA) Loans
Updated 4/22/20: The number of US Small Business Association (SBA) approved lenders tripled in two weeks. Collectively, those lenders processed more loans in 14 days than had been processed in the last 14 years! It’s no surprise that on April 16, the program ran out of money. We expect that the second round of funding will be announced soon. Here’s what you we suggest you do to prepare for round two.
 

Paycheck Protection Program (PPP)

• Click here to locate an approved lender in your geographic area.
• Complete the application and gather documents to match the numbers on your application. At a minimum, you may be asked to provide payroll Form 941 and a profit and loss statement for the application period.
• Research your lender’s submission process.
• Prepare to submit a complete application package as soon as you can. 
• You are eligible to receive up to 2.5 times the average monthly payroll if you:
  • Are self-employed, an independent contractor, or sole-proprietor, or
  • Employ fewer than 500 people, or
  • Receive a 1099-MISC for your work, or
  • are applying on behalf of a 501(c)(3) non-profit organization 
• Spend at least 75% of the loan on payroll for eight weeks and up to 25% of the loan on utilities, rent, or mortgage interest and you will not have to pay it back. 
• Do not use the funds for:
  • salaries greater than $100,000,
  • payroll taxes and income taxes,
  • compensate employees who are not US residents 
• The loan payback period is two years.
• The loan interest rate is 1%.
•  Forgiveness Application is now available to download here. 
  

 
Economic Injury Disaster Loan (EIDL)

• Check back here daily to submit your documents when additional funding becomes available.
• You are eligible to receive up to $2 Million with up to  $10,000 advance.
• The loan interest rate is 3.75% for small businesses and 2.75% for non-profit organizations.
• The maximum loan repayment period is 30 years.

 
Deferral of Payroll Taxes

•  Defer paying the 6.2% Social Security payroll tax on wages accrued between March 27, 2020 and December 31, 2020
• The deferred amounts will be due in two payments, December 31, 2021 and December 31, 2022 
• Employers who have their PPP loans forgiven will not be eligible for this tax deferral 

 
The US Chamber of Commerce has an easy to follow handout to explain all these details.

If you’re really interested, read the Interim Final Rule issued on March 13, 2020.

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Additional Resources

The Save Small Business grant offers $5,000 to businesses that employ between 3 – 20 employees in an economically vulnerable area. Pop in your zip code to see if you can apply.

The RVA Small Business Relief Fund will award 100 unrestricted grants of $2,500.
For-profit businesses may apply between 5/13 – 5/19 if they meet these criteria:
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1. Based in Ashland, Charles City, Chesterfield, Goochland, Hanover, Henrico, New Kent, Powhatan and Richmond
2. Been in operation at least one year
3. Have  2 to 25 FTE (full time equivalent) employees
4. Demonstrate negative financial impact from COVID-19
5. Demonstrate need for working capital to support payroll expenses, rent, mortgage payments, utility expenses, or other similar expenses that occur in the ordinary course of business
6. Demonstrate a focus on reopening as COVID-19 guidance and restrictions change

All applicants will be informed of a decision by Wednesday, May 27, 2020.
See  www.chamberrva.com/relief/ for more info.


 
Small business owners without W-2 Employees 
​See details for self-employed individuals

 
Individuals with federal student loans
Principal and interest payments are suspended on federal student loans until September 30, 2020. No interest will accrue during the suspension period. Contact your loan servicer to learn more or the federal student aid website.

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Virginians with utility bills
The State Corporation Commission directed electric, natural gas, and water utilities that it regulates to suspend service disconnections for any customer for 60 days.


Visit the Virginia, Richmond, or Henrico COVID-19 websites for local updates.

One of my good friends moved to Memphis in December. She is back in town for a couple of weeks teaching a university seminar.  We made plans to get together after one of her classes last week. I was so looking forward to catching up over dinner. A few hours before we were scheduled to meet, she sent me a text, “I have a tax appointment at 9am and I have to find [electronic documents] for it… and I don’t know WTF I am looking for. Can we reschedule? Must be a place with wine… cuz I need a drink now.” I suggested an alternate date to meet and I giggled.


My Philosophy
I avoid the stress that drives many people to drink around this time of year as they get ready for “tax season”.  I believe and promote the idea that tax preparation is a process, not an event. Therefore, I’m never racing toward a tax appointment or a filing deadline. My dad coaches sports and one of his favorite phrases to share with his teams, encouraging them to practice and work out in the off season is “Stay ready, because it takes too long to get ready.”  I’d like to share my system for organizing money documents and staying ready for tax season.


My System
I have a file cabinet at home where I store all my financial documents. I have hanging files for documents that fall into one of nine categories. Each of those hanging files have several individual folders for subcategories. I’m old school, so I still like getting paper for money things.  Some financial institutions limit the amount of time that you can go back and print statements or charge a fee to reproduce documents past a particular point. I want to be sure that I have all that I need, when I need it, without the fees. I have a “mailbox” inside my home, at the front door beside my keys. I drop mail in the mailbox as I enter my home and open all the mail at one time when I am able to take action – pay bills, review account balances, file the items that I need to keep, or recycle the papers I no longer need.

I use electronic systems as a back-up or to make sure that I get real time alerts and deadline reminders. If you prefer to store things electronically, this system still works, just think of the hanging files in terms of folders on your laptop or tags in your email.  One of the hanging files is dedicated to taxes. Within the taxes hanging file, I have one folder for earnings and one for deductions. If using an electronic filing system, be sure to rename the downloaded files so that you can search for “2019 Client ABC Form 1099” instead of  the nonsensical file names that are often assigned to digital files. 


Earnings
When I was earning a paycheck, I kept my pay stubs in the earnings folder until I received my w-2 and made sure that everything was reflected properly. Now that I’m self-employed, many of my payments are electronic. I have a folder in my email for each of my clients and I file notification of payment in that client’s folder. If I’m paid by check, I keep the stub until I get the 1099 from that client to be sure that all the payments are included.

Deductions
Receipts are our friends. ☺ They share details that statements don’t.  I pay my personal property taxes in person, with a check, at City Hall so that I can get a receipt. I file that receipt in my deductions folder. All the items that come in the mail that indicate important tax documents are inside also get filed in the deductions folder. Other usual suspects in my deductions folder are thank you letters from charitable organizations, statements reporting mortgage interest and real estate taxes paid, proof of medical expenses and premiums paid. Understand that this is not an exhaustive list of things that can be deducted on your income taxes. Speak to your preparer for a comprehensive list.

Examples
These are all  the categories in my paper filing system, presented in the order that they appear in my file cabinet from front to back, which represents the frequency that I access the hanging file. I have also shared the length of time that I keep the documents within each category: 

• Bank accounts & Investment accounts (3 years)
• Credit card accounts (3 years)
• Utilities (one month)
• Mortgage (one year – destroy monthly statements when I get an annual escrow update)
• Medical (3 years)
• Automobile Information (destroy when I get rid of the car)
• Taxes (permanent files)
• Retirement (permanent files)
• Insurance (permanent files – destroy if I close the account)

I’m not suggesting that you adopt my filing system, although I’m happy to teach you my ways, if you’re interested. Instead, I’m hoping to encourage you to find a system that works for you in hopes that you’ll choose to pick up one new organization habit that helps you stay ready for the tax preparation process, so that you can spend more time sippin’ with friends and less time searching for paperwork in the coming months and years.

Money management is super personal.  Entrust your accounting to a professional who is knowledgeable, experienced, and whose personality is a good fit with yours.  An accountant is a person whose profession is inspecting and auditing accounts; think data analysis. A certified public accountant (CPA) is licensed by a state examining board as having fulfilled the requirements of state law; these professionals are required to uphold a code of ethics and conduct. They are also required to meet state specific educational requirements. If you choose to work with an accountant that is not a CPA ask questions to learn how they remain current on rules and regulations.
 
CPAs are generalists. However, many choose to work with a specific type of client, within a specific industry, business size, or stage of growth.  C Corporations have a different tax structure than Partnerships. Non-profit organizations have different reporting requirements from sole proprietors. Consult with a lawyer to choose the best legal structure for your business and select an accountant that specializes in that type of structure. Ask questions to find a professional that is familiar with the opportunities and challenges that your business is currently facing. There are not separate rules for recording financial transactions as a start up versus a business that has been around for 30 years; architects follow the same financial reporting rules as photographers. However, the decision making may be different depending on your industry or time in business, and I encourage you to choose a professional that understands your financial position.
 
Clearly state your expectations and the desired outcome for your partnership with an accounting professional. Are you looking for tax preparation only? Do you want to drop off a box of receipts and move on to their next task allowing the accountant to handle recording and reporting all the transactions?  Would you prefer to sit and share the challenges that you have in business and work together to problem solve and make better financial decisions? Have conversations before you engage a professional to be sure that their personality and communication style will work well with yours and that they can meet your expectations.
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Be sure to check out the video from my Instagram LIVE post earlier this week!