How CPAs can help small businesses survive the pandemic

CPAs are playing a vital role in helping smaller businesses cope with the COVID-19 pandemic. Julie Killian, CPA, a shareholder at Clayton & McKervey in Michigan, discusses how her firm’s clients are responding to the crisis. She also shares steps smaller businesses can take to improve their financial standing and increase their chances of staying afloat.

What you’ll learn in this episode:

• The relatively simple tool that’s an essential first step for businesses struggling to get a handle on their situation.
• What businesses should do first if they find themselves short on cash.
• Why demand for the Paycheck Protection Program (PPP) is so high.
• How businesses can determine whether they’re eligible for the PPP, Economic Injury Disaster Loans, or both.
• What clients should know about applying for government stimulus programs.

Play the episode below or read the edited transcript:

To comment on this podcast or to suggest an idea for another podcast, contact Courtney Vien, a JofA senior editor, at Courtney.Vien@aicpa-cima.com.

Transcript:

Courtney Vien: Hello and welcome to the Journal of Accountancy podcast. I’m Courtney Vien, a senior editor with the Journal of Accountancy. I’m speaking with Julie Killian, CPA. She’s a shareholder at Clayton and McKervey in Michigan, and she’s going to talk to us about ways you can help business owner clients through the current pandemic crisis. Hello, Julie.

So this has been a really intense month for everyone, but all especially for CPAs. I mean, they went straight from busy season to dealing with the economic downturn in the pandemic. How have things been at your firm?

Julie Killian: Well, I have to say things are going as well as can be expected. Our managing shareholder did some quick thinking and provided everyone with the equipment they need to work from home as well as some other perks to make the transition easier and to allow us to focus really on the needs of our clients right now which are just so different than what they normally are at this time of the year.

Vien: Tell me a little bit about your clients. What kind of clients do you normally serve?

Killian: So our firm is unique in that we work exclusively with privately held, growth-driven companies, so it’s a very entrepreneurial client base with no nonprofit or governmental or regulated industries. So we have a very niche focus that allows us to have unique insight into our clients’ needs and opportunities.

Vien: How are your clients faring during this crisis?

Killian: Well, you know, it’s pretty easy to be overwhelmed by what’s going on. It’s like, you know, unlike anything that most Americans have seen in their entire lifetime. It’s interesting. There’s a great book and TED talk that one of the managers that I work with shared with me a couple years ago called Extreme Ownership, and I love the message of the book, but one part in particular resonates with me today. And that is: In times of crisis you have to prioritize and execute. And so right now, you know, it’s a really tough time for our business owners, but we’re trying to help them, you know, understand that they’ve got to do whatever they can to cut costs, maintain liquidity, really prioritize those necessary costs, and eliminate anything that’s nonessential ,focusing on their core business. And so they really need to, you know, decide what’s essential and develop that plan and execute on that plan.

Vien: What would you say is the most important thing or the first thing that business owner clients need to do?

Killian: Well, I think it’s really important for them to get their arms around what’s happening in their business today and in the foreseeable future. And so we’ve introduced to our clients or provided them with a tool that’s kind of tried and true. It’s been around for years. The rolling 13-week cash flow analysis and it’s a tool that really helps you map out your anticipated cash inflows and your cash outflows by week for the next 13 weeks. That really gives them a nice picture of what they’re going to have to deal with, you know, over the next quarter, basically.

This is updated regularly as information changes. And as one week ends, you add a new weeks to maintain that 13 weeks, and it really can provide them with a great tool to look at what their needs are going to be and really manage their core business and, you know, what they need to just survive on a day-to-day basis.

Vien: What are some ways that businesses can improve their cash flow situation during this crisis?

Killian: That’s an interesting question, because in normal circumstances businesses, you know, would prepare this 13-week cash flow. And, you know, then go back in and look at the sources and the uses of their cash and start to actively manage their receivables, making sure to collect balances timely or seeing if they can push someone to a quicker, you know, payment term or conversely, you know, they might stretch out payments to certain vendors to try and conserve cash. Unfortunately, in the current conditions with everybody being affected by the crisis right now, you’re going to be hard-pressed to push anyone to pay their receivables. You know, you may have people that can’t pay them at all. Certainly not many customers are going to be looking to pay them early. And your vendors are probably going to be asking you to accelerate your payments rather than giving you longer payment terms. So it’s really a time where businesses have to get creative and look for different ways to improve their cash flow. And they can start internally, really looking for anything nonessential, prioritizing critical and noncritical vendors to make cash flow decisions. You also may have to make workforce decisions, you know, at least in the short term.

Vien: What are some strategies that businesses can pursue if they find themselves short on cash?

Killian: Well, if their internal efforts are not going to be enough to help them maintain liquidity, the first step that businesses really need to take in this environment is to talk to their lenders. There are programs that are available. Lenders have some flexibility to work with their customers right now. Each day we see these packages going through Congress, and there’s programs in those packages that are being offered through the federal Small Business Administration and through your state, and even some of the local governments are offering different programs to help small businesses navigate this unprecedented time.

Vien: So how important has the Paycheck Protection Program been to your firm’s plans to help small businesses?

Killian: Well, it’s really a nice option for so many companies, to help with their cash flow, so we have spent a tremendous amount of time trying to help educate our clients on how to make the calculations to determine the amount of the loan that they might be able to get and then helping them understand the types of expenses that they can use the money for. And in particular there’s a forgiveness provision in the Paycheck Protection Program where if they use the money for certain things they may not have to pay any of that back or there may be a portion of it that they don’t have to pay back, so there’ll be debt forgiveness. 

Vien: Have you seen much interest in the program from your clients?

Killian: Yeah, you know, really everyone is interested in it because it — there was a lot of relief that came out in the CARES Act. There’s a lot of different programs that are available, but this one really is the most generous in the sense that you can get as much as $10 million of loan, you know, if your payroll costs happen to be that high. So a company basically looks at their average payroll cost over a 12-month period, either the year of 2019 or the last 12 months before submitting that the loan application, and they take those average payroll costs and multiply it by 2.5 times and that’s the amount of the loan that they can take. So depending on the amount of payroll costs that they have that can really be a substantial amount, and then the fact that that loan can be forgiven, you know, it gives them a mechanism to keep their employees receiving a paycheck at a time where, you know, business might be down or almost nonexistent and helps them keep their employees in place so that when they have the opportunity to ramp back up they’ve got people ready to go. Their people still get a paycheck so it’s a very, very appealing program for our clients, so there’s been tremendous interest in it. 

Vien:  So has this new program kind of taken the place of SBA disaster loans in responding to the pandemic or are you still encouraging clients to apply for those?

Killian: Yeah, we’re still encouraging clients to apply for those. So the SBA disaster loan falls under the normal SBA disaster loan program, and it takes a little bit more effort to get that loan in there, so more that has to be done like guarantees and things like that, but it’s still a really good program. If someone’s in a position where they’ve had economic injury that they can, you know, show that they’ve had economic injury, that loan is still potentially a really good option for them. And, depending on the case, companies may be able to get both. They may be able to get the economic injury loans as well as the paycheck protection loan so there’s still a reason to look at both of those programs in certain circumstances. 

Vien: What would you like clients to know about applying for these programs?

Killian: You know I think probably the most important thing is, particularly with the Paycheck Protection Program, is that they make sure that they’re reaching out to their banker. So the SBA is having banks administer the Paycheck Protection Program because it’s just way too much volume for the SBA to handle on their own. So where you’ve got a relationship with a banker you really need to reach out to them and talk to them and have them help you through the program. Most of the banks are administering this program right now.

As far as the Economic Injury Disaster Loans, that is administered by the SBA. And so you have to specifically apply for that through an SBA lender or directly with the SBA so clients just need to understand that and make sure that they’re going through the right avenues and in particular getting in touch with your banker and their CPA because the CPAs are doing a lot of work to understand these laws and to reach out to the bankers and understand, you know, the best way to help customers, you know, the bank’s customers get to the appropriate people for the program they’re interested in.

Something that’s become really important for clients is to use a forecasting tool like that 13-week cash flow to really identify where they might have shortfalls, and it gives them a tool to help compare different stimulus options because there will be clients that that may be too big to apply for the Paycheck Protection Program where they’re going to want to look at Economic Injury Disaster Loans or restructure their current loans. Or they may be eligible for PPP, but they want to understand the different programs available. So having that cash flow and then using it to compare different stimulus options and to look at tax planning.

You know, the CARES Act allows now a carryback of losses for five years so, you know, if someone experiences big loss in 2020 they may be able to recover cash flow by going back and getting a refund of taxes paid in the past. So there’s a lot of great programs that are offered in that CARES Act and it all ties back to understanding your business, understanding your cash flows, and then using that as a tool to make your best decision. 

Vien: Well, hopefully this new legislation will help a lot of businesses out.

Killian: Yeah, I think, you know, it’s nice to see there’s really a strong focus on keeping the American worker in a position to be able to go back to their jobs even if they’re in a temporary layoff and to have the other financial support to not get into their own trouble with, you know, their own finances at this point.

I hope everyone stays safe and healthy and navigates this time with the tools that are out there.

Vien: And thank you to all the CPAs for everything you’re doing. I know a lot of you are scrambling right now, and you’re really helping to keep businesses afloat, so thanks.

Killian: Yes, there is quite an effort going on — including the AICPA — to make sure there’s ready access to all of the resources. There’s so much information coming so fast that it’s nice to have a lot of people jumping in and reading the information and building out websites to provide quick links so people can try and figure out what the best path is for them to get through the next, hopefully, only couple of months.

Vien:  Well, thanks again, Julie. Once again that was Julie Killian, CPA. She’s a shareholder at Clayton and McKervey. And this has been the Journal of Accountancy podcast. Thank you for listening.