At this point, you may be closed entirely or just open for emergencies. Either way, the focus should be on how you can maintain cashflow. The fact that there is no direct end date to the crisis impacting the global economy. Ccashflow during these COVID-19 times is imperative.
Here are 7 ways to help the cashflow of your practice.
1. Layoff Employees or Apply for CARES Act PPP Forgivable Loan
Payroll is your biggest expense. You likely are looking at 2 options right now. You either are reviewing whether to layoff your employees to lessen that expense and make sure your employees have income and/ or apply for the PPP Loan. Find out which may be right for you.
2. Review your Financials
There are expenses for your business that won’t go away while you close. You need to know which ones those are. Go through your financials and create a list of expenses and debt payments that need to be made monthly so you can build a 3 month cashflow projection.
Any expenses you don’t need and can cut should be done today. Many times, we are paying for things monthly that we don’t even know we are still paying for. Review those and cancel what you don’t need at this time.
3. Defer (If Possible)
If your cashflow is super tight, then go through your list of payments/expenses and start calling to see who will defer payments. There is no payment that is too big or small to see about deferring. Banks are here to help so any large debt payments that you have, you can call the bank or lender and ask for a couple months of deferment. They may not approve it, but It's worth trying.
4. Retirement Account (401K) Loan or Distribution
You may have two options with your 401(k). You can take a loan or a distribution. (You may have to alter your plan document to do so—check with your plan provider.)
You can take up to a $100,000 loan (Increased from $50,000 in the CARES Act) out of your retirement account (401K).. If you and your spouse work for your business then you both can take out the $100,000 giving you $200,000 to use if need be. Retirement account loans need to be paid back over 5 years.
Alternatively, you could take a distribution up to $100,000 and avoid paying the 10% penalty as it has been waived under the CARES Act. The tax payment will be spread over 3 years or you can actually recontribute the money and not pay any taxes.
5. IRA- Distribution
You can withdraw up to $100,000 from your IRA without the 10% penalty. Please note, you will still have to pay taxes on the distribution. This is similar to taking the distribution from your 401(k).
You can spread the tax payments over 3 years.
You can re-contribute the $100,000 over 3 years and not pay any taxes.
Note: For IRA’s, you can’t take a loan. It must be a distribution as IRA’s don’t allow loans.
Tax Tip: You may find that this year you end up in a super low tax bracket compared to other years due to loss of business revenue. As a result, it may be better to pay the taxes on some or all of the distribution should you decide to take it.
6. Personal Expenses
Now is the time to scrub not only business expenses but also personal expenses. Look through your credit cards or checking account for expenses that are on auto payment and decide if you should cancel those for the time being.
7. Make a Plan
We will recover from this. Once you get a handle on your 3-month cashflow, focus on creating a plan on how you will hit the ground running when you reopen.
Cashflow is super important. Once you have that solved you will sleep much better at night not having to worry about where the money will come from to maintain your business during this trying time.