What to do after you get a PPP Loan
Saturday, June 26, 2021
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Hi, Katie here.
Now that you have successfully navigated all the gray areas and cut through that red tape, let’s open up some things to think about to put those PPP funds to their best use.
Here are some questions you may want to answer before you start spending those funds.
- How do I maximize its use?
- What priorities do I put on expenses to max out loan forgiveness?
- How can I use the money to lengthen the cash runway for your auto repair shop?
Here are some ideas to help you answer those questions. Use your PPP funds on the right type of expenses to maximize forgiveness. A prudent move is to open an account just for the PPP funds. As a bookkeeper, this is what I call a no brainer. It makes tracking expenses much easier. Expenses such as:
- Payroll for 8 weeks after receiving the loan, including — salaries, wages, vacation, parental, family, medical, or sick leave, and health benefits.
- Rent or mortgage interest for 8 weeks if the mortgage was signed before February 15, 2020.
- Approved Utilities.
Here’s something very important for you to remember. At least 60% of the loan proceeds must be spent on payroll costs to qualify for full loan forgiveness. Work with your lender to submit you forgiveness application with the required supporting documents. For the second round, if you received a lone of $50,000 or less, the only requirement is to fill out and submit a simplified forgiveness form.
Keep records of all PPP related expenditures and DOCUMENT EVERYTHING! All of the expenditure down to the penny if you want to receive forgiveness. Check with your lender to verify what forms and financial proof they require.
A good idea at a minimum is proof to show the number of employees you have and how you have not laid anyone off since February 15th. If you had to furlough employees after receiving the loan, the deadline to rehire them is 12/31/21 to receive full forgiveness.
Put together a document that forecasts the impact COVID-19 will have on your business through the end of the year. This is critical to receive forgiveness. You must certify that our business needs the PPP money due to COVID-19.
Create a financial forecast that gives you a projected Profit and Loss Statement and a projected Cash Flow Statement. Working with your bookkeeper can help you prepare the statements. Then you will understand:
- How the PPP loan helps your cash flow.
- How to plan to spend the PPP money correctly.
- If your business needs more than just PPP to survive this crisis.
Create a series of “what if” scenarios. Ask question about potential challenges and issues that may crop up. Here are some examples:
- What happens after 8 weeks?
- When do you think your sales will start to recover?
- Can you pivot and change what you sell or the way you sell to make your business more viable during this crisis?
Play with your numbers and plan to act on these forecasts if they become reality. Look at this through the lens of keeping your business viable. The more you plan the better prepared you will be if one of these happens. Less fear of the unknown when you plan for it.
Retain as much cash as you can, and you may want to seek out additional aid or loans. Here are some considerations:
- How is your cash looking 3, 6, 9 months out?
- Can you sustain your business without more cuts to personnel?
- Can you call vendors and renegotiate payment terms or get discounts?
Explore all your options and vendors may be willing to help as they don’t want to lose customers right now. Figure out all the expenses that can be cut and all the affects to your profits and cash. Then you have the knowledge if you need to apply for other loans or aid. Check out your local city, county, and state to see what programs they may have for small businesses. You may qualify for Emergency Injury Disaster Loans, so get all your options lined up and prepare for them if need be.
I hope this helps as no one can tell the future. Having contingency plans in place is wise and will help you sleep better at night, no matter how the COVID climate changes.