How To Spend Covid-19 Financial Assistance

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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