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PPP vs EIDL

Published by Summit Marketing Team on 22 Apr 2020

The Modern CPA Success Show: Episode 14


In our last episode, we talked about how to navigate your clients through difficult times due to the COVID-19 crisis. This week we want to go more in-depth with tools and resources available to you to help your clients through this pandemic.

Today, we are sitting down with Adam Hale, COO at Summit CPA to talk about the Paycheck Protection Program (PPP) versus the Economic Injury Disaster Loan (EIDL) and what we are doing for our clients right now. Listen to learn about how you can support yourself and your clients during this crisis.

Jamie Nau: Hello everybody, welcome to today's podcast. So today we are going to go a little bit deeper on our last podcast. So in our last podcast, we talked about navigating clients in difficult times. Obviously when we recorded that podcast we were just starting down this coronavirus, quarantine business planning path. Now we're in the middle of April, or early part of April, and we have a lot more information. So we're going to go into a lot more specific like what we've been doing for our clients in response to the coronavirus, as well as all the programs that are out there for small businesses so that way people are prepared to help their clients get through these difficult times. So this will be a much deeper dive into what we talked about in our last podcast. So Adam Hale is here with me again. Adam, you want to get us started and kind of walk through the three programs that are out there small businesses?

Adam Hale: Yeah, it's been crazy at times. I know right at the very beginning, everybody was racing to the SBA, and looking to apply for the EIDL loan. Then, you know, a couple weeks later, the 3P loan came out, and then they created a toilet paper isle, kind of worst case scenario, basically say hey, all the money is going to run out. Hurry up and file on Friday, and then we got on the 11th hour, literally the night before, all kinds of guidance that I think through a lot of the banks into a bit of a tailspin, you know, that they had to follow a lot of the traditional SBA requirements in terms of documentation and everything. I don't think the big banks were ready for that. They were all ready to go with a super simplistic version online, and then they just got bashed whenever that guidance came out. Then the thing that we're not hearing a ton about right now, but we want our clients to be aware of, is the employee retention credit. I think that's going to be one of those things that once everything settles down with the 3P loan, and everybody gets their money and they spend their money, they're going to start hearing about people taking advantage of the employee retention credit and then asking us why we applied for the 3P which is gone, you know, and then they will ask why can’t I take advantage of these credits? So I think the biggest thing for us as we navigate those three different products is we're telling people, you know, the EIDL loan is good to apply for, we're telling our clients to just wait until we get the 3P. I know clients that have already applied for the EIDL. I hear they're starting to get funding now, today is April 8th. So we'll see if that's the case or not. But we're telling people just so that they're their EIN is not in multiple places at the SBA, maybe just go ahead and focus on the 3P, and then circle back the EIDL as soon as you're done with that. You know, depending upon your circumstances, if you've been hit hard, the EIDL is still going to be a great viable option. I'm sure everybody's aware of what the differences are between all those, so I wasn't going to get too deep into the technicalities, just how we're advising our clients between the two. So in most instances we're saying do both, but do 3P first, and then come back to the EIDL. 

Jamie Nau: We have a lot of guidance out there on this. There is a lot on our website. There's a lot of other means of communication that we've done on this. We done some write ups on this. So definitely check our website if you want more of the details that Adam is talking about. And to piggyback on what Adam said about the EIDL loans getting approved just this week, I think yesterday we saw our first couple of PPPs that looked like they'd been approved as well. So I'm starting to see a couple of those float through. Again, we've had a lot of clients apply and we've only seen two or three approved, so we're not talking about a lot of approvals, but we have started to see off couple from the small banks trickle in.

Adam Hale: And we're not clear what approved means either. So conflicting guidance on that, too, like, what does that mean? I mean, until we see money in the bank, you know, until these folks are getting calls saying hey, we're going to deposit this, do you want to do it? Don’t getting overly anxious about that. But it does beg the question whenever we talk about the 3P loan is the employee retention credit, because again, I don't think it's getting much press right now, and I don't think it applies, at least for us, for the majority of our clients. However, for the clients that are really hit hard, that are going for the EIDL loan, if they're completely shut down, and might be shut down for the foreseeable future, the employee retention credit might be a good one for them. I mean, there's a lot of nuances to it, you know, you would have had to been shut down by government ordinance or, lost 50 percent of your sales, and then the way it is calculated is trickled in really weird. It's like once you get above 80 percent of where you were in prior in that quarter, the quarter after, that's whenever your credit stop, but essentially you can get up to $5000 for every employee that earns up to $10000 between March 12th and December 31st. So for people that are completely shut down and are not planning on hiring back everybody, you know, they're having to kind of restructure their business ,or it could be a lot longer process on their way up, the employee retention credit, paired with the EIDL, might be a better solution. It doesn't mean that, again, I know everybody's in a frenzy like, let's apply for the three P, and maybe some people did and now they're doing the math on the employee retention credit and they're thinking to themselves, well, I don't know, maybe I should've went the other direction. I mean, you can always turn the loan down.

Jamie Nau: Yeah and the big thing there is, what you want to do with your clients is kind of compare what that credit looks like, you know, because the PPP, the benefit of that is the forgiveness. So if you have to get a pretty large loan because you had a nice salary, or a nice cost as of February, whereas the prior year, you know, depending on the calculation you use, you might get a nice sized loan, but then you have to lay everybody off, you're not going to get very much of it forgiven. Then it's just going to be a loan. So you want to compare the amount you're getting forgiven, to this credit, so that’s what it comes down to. So okay, the PPP is really nice for people that are going to actually retain their employees. If you're planning on keeping your staff, you plan on keeping your team the same, but you need some help to do it, then the PPP will come in and it will be forgiven. If you're a dentist office, or a restaurant were you just can't keep employees on staff because you weren't getting any revenue, then you need to look at the EIDL combined with the credits, because that will actually be a better benefit for you because you won't have to worry about the forgiveness part of it.

Adam Hale: Yeah, it definitely could be, I mean, I think you bring up a couple of good points. I know that specifically like dental offices, they've been getting a lot of guidance about maybe trying to time out their application for the 3P, knowing that they're going to be shut down for the next two to four weeks, rather than trying to get the loan right now in a time whenever they don't have anything going on. Maybe trying to push their deadline out until the beginning of May or something like that. Of course, everybody's scared that there won't be any money. So that is a risk you run. I mean, I know they're saying they'll go re-up the amount and stuff like that, but any time it has to go back through Congress, it's always a scary proposition. So there's that part of it. But the other side of it is, is I actually did do a calculation with a client that I think would have been more advantageous to do the employee retention credit. So assuming that, and keep in mind, we don't have a crystal ball so we don't know exactly when things are going to come back, and how that's going to shake out, but we ran some numbers and I'm pretty confident that this client, because they're not going to bring back a good portion of their people just based on timing and everything, whenever you look at the amount that is going to be forgiven versus the baseline, and then you compare that forgiven amount to the retention credit, I think that they'll actually get more free money, air quoting “free money”, if they do the retention credit. However, this client in particular needs the loan as well. So that two years at 1 percent interest is a real benefit for them. So even if let's say they only are going to get a half a million dollar loan, and only seventy five thousand dollars of it's going to be forgiven, the retention credits look like they might yield a little over a hundred thousand dollars or so. So it seems like, you know, apples to apples, you'd want to go with the retention credit. But the clients like, but I could use that extra money that I'm not spending on employees as a loan to help buffer, you know, the remaining time, and I would rather roll the dice with a little bit of security on the loan. So that's another decision to make. It might make your choice a little bit harder, and we don't know exactly how the forgiveness is going to work. They're still looking to issue additional guidance on exactly how that's going to work, and how that loan piece is going to work. So I wouldn't be surprised if they throw another curveball. 

Jamie Nau: Yeah, I think just to turn the page here a little bit, so talking about, you know, as a CPA or as a Virtual CFO, what our responsibility is here. I have been spending a ton of time with Adam over the last two weeks talking about this stuff, and you did hear him talk over the last eight minutes. He has probably read this bill over more than some of the congress members have to really get familiar with it. I think as a CPA firm, one of our strategies is to come into this as experts, and really make sure our clients feel comfortable with us. Adam, do you want to expand on that a little bit in how we approached this coronavirus with our clients?

Adam Hale: Yeah, so a couple of different ways, one, we've been doing webinars for our client bases just in the mass. We added a tab on our website for COVID-19 with all kinds of resources. We've also been doing broader communication. As a team we get together and say hey, what's the highlights? And then we've pushed that communication out to all of our clients as kind of a broad message, understanding course, like us, they're getting pummeled with just COVID-19 emails. So we didn't want it just to kind of lay there. What we also did is we built a spreadsheet to calculate, and I know some banks have been just super confused, like some of them are just flat out wrong, but we built a spreadsheet out that calculates the loan amount also, and we did this last week. So we did it before they even came out with that additional guidance. We have the loan amount. We also have a forgiveness tab, and then we have a cost benefit tab where we can see if we want to make specific strategic layoffs and what the impact will be on forgiveness, because part of our communication, and working with our clients is we're talking to each one of them not just to make sure they understand how it works, we're explaining to them and going ahead in introducing the idea of the retention credits. Saying, this is the route that we think you should take, here's our here's our guidance on the EIDL. These are individual communications that I'm having with my client. Then I'll say hey, you know, hopefully you were able to get the overall guidance that we sent out and that it makes sense, do you have any questions? We walk through it and then we just jump right into an example. So we have all their information already dialed in. We've got all their support in order to build the loan calculation. I mean, don't get me wrong, they've asked for some additional crazy stuff for some of these applications, but for the most part, we had that that information around already because that's what we were doing with our loan calculations in advance of this. Then what we're doing is we're walking the client through the loan amount, because at the end of the day, they're the one who has to sign the application. And they could be in some bank situations where the banks wants to actually talk on the phone walk through everything. So we want to make sure they're prepared and understand what's going on. So we walk through that example, and then we flip over to the forgiveness tab and immediately show them hey, based on where you're at, this is the chunk that could potentially be unforgiven, and keep in mind, you can pay this money back or you can hang onto it. And we kind of explain how that would work so that they're prepared and they don't think hey, I've got payroll, I got a half a million dollar loan, I'm going to spend it all, I'm good. It's like, no, here's the caps, you know, you can only spend 25 percent on these categories. So we walk through that entire analysis, and then finally if we go through the layoff scenario for people that are considering laying off people, because maybe they were anyway, you know, just low hanging fruit. People that were poor performers that need to be moved on. Do you hang on to them? Or do you let them go? How does it work with the severance? So we're playing out all those scenarios right on that G sheet. That's like the first scenario planning that we've been doing.

Jamie Nau: It's been really interesting. We typically talk to our clients every week, or the majority of our clients every week. I'd say over these past two weeks though we have been talking to our clients almost every day, just keeping them updated, even if it's just a quick Slack message of hey, just so you know, the loan application for the bank isn't open yet. Just keeping those things updated. And we've wanted to make sure that everybody inside our firm understands these programs inside and out. That's been the biggest challenge, I believe, is trying to educate not only to our clients, but also educate our people so that way they can keep our clients educated. That's been one of the big challenges for us, because as anyone who has been following this knows, things are changing every hour. I feel like since the second the coronavirus started, since working from home started, every day/hour something's changed. So I think that's the hardest part. Keeping that communication in place and making sure that I'm not going into a call telling people oh yeah, you should include  your 1099 employees, and Adam's another call with another client saying no, they're not included in that loan forgiveness. So it  has been challenging for us to make sure we keep our people educated. Adam, do you want to expand a bit here, and talk through how we've kept our internal team educated on a lot of this stuff?

Adam Hale: Yeah I mean, just like external meetings with our clients on a regular basis, we're huddling up probably on a more frequent basis. We normally meet a couple of times a week as a CFO team just to discuss stuff. We have other topics that we cover, obviously, but we've dedicated our time pretty exclusively to what's going on, new developments, that kind of thing. Just making sure everybody's on the same page. We've also, I think, done a really good job within our Slack channel. People are constantly just feeding updates, feeding client updates like, this bank is saying this, this bank is saying that, just so we're all familiar. I might not work with three of the banks that are on that channel, but whenever people are asking I can say, well the other banks are doing this. So we have this portfolio of like 20 different banks, 30 different banks that we know exactly how they're operating, what they're asking for, what they're telling and communicating to their clients, and we're all doing that within that Slack channel. As well as additional guidance from the Treasury, or anything else that comes available, somebody is immediately posting that inside the select channel, and then when we do have our huddle ups where we're talking through it.

Jamie Nau: Then in addition to one thing we've done, because things are changing quickly, so we have the Slack channel, we also have OneNote, which is kind of the source of truth, because you know, two hours ago we thought we were including something in the loan calculation, and then we find new guidance. We talked to someone new, and now we are no longer including that in there. So if you just read that message two hours ago, you're using the wrong data, it's changing so quickly. So we have created a OneNote that is kind of our source of truth. I'm going through there all day, every day. And to be honest there's some things in there that are unknown. For a while, it's like okay, right now we are not sure about this. We are not sure how the taxes are going to be handled on these repayments at some point. So that's in there as an unknown. So we tell our clients there's a lot of conversation about this right now we're still trying to figure this out, but we'll keep you updated. So there are some things in there that are the source of truth, and that truth happens to be, we don’t know yet. So we have been trying to keep that source page updated.

Adam Hale: Yeah, unfortunately it seems nobody has hard facts on lot of the stuff. That is starting to come to light now, and I think over the next couple of weeks more will come. It’s just we were put in a tough position in terms of, settle it and let some this bake, and rightfully so, I mean, people need money, but instead of letting some of this stuff kind of come to the surface,  we having to kind of go with the flow, and they're answering questions as we go and banks are taking a little bit of time to get caught up. So I think that our clients have felt our presence now more than ever, which I think is fantastic. You know, I think that we've been able to help them out, help clarify direction, you know, which way they should go, where they're at. We can also come in as a little bit of a cooler as well and say hey look, I know you're super anxious and you're mad that Chase Bank hasn't called you back or whatever, but keep in mind, ABC Bank, and this one, and this one, and this one haven't filed either. You know what I mean? So let's stay the course. Let's not flip to some five and dime kind of thing. Like just figure that stuff out. I think that our presence has really helped our clients navigate this really difficult time and confusing time. So that first level of scenario planning is super important. And then we're already talking to our clients about what it means to their financial forecasts. So we're taken it to the next level. So once we've done that baseline forecasting, and we look at like hey, how much of this is forgiven, how much of it isn't? Then we go right into our forecast, and we're looking at it like hey, we're changing our sales assumptions, our churn, whatever that is. We're walking through modeling scenarios on the income statement and seeing what impacts they have on the balance sheet. Asking what does this mean to our overall liquidity? What does this mean to our cash in the bank? What does this mean to our tax situation? So we're adjusting all those things. We're running out two or three different models with our clients so that they can kind of see, hey, this is the impact. This is if I pay it back. This is if I hang onto it, you know, and they can say okay, great, this is what my runway looks like now. Again, it allows them to focus on operations and making sure they're retaining their clients, and doing those things to the best of their ability instead of worrying about hey, should I be cutting 15 people tomorrow? Oh, I didn't realize I had that kind of runway then, you know, assuming the loan comes through, I'll be in really good shape. If not, then okay, we need to have this conversation again in two weeks. So we can play out those kind of touch points, which I think is also a great value add because we've already got it in place. Being a VCFO, we're already all over the data and now we can just kind of plug and play into our model.

Jamie Nau: And I think the important thing is, as you know, we normally talk with our clients about their forecast once a month. I would say over this last month, it's been more like once a week, as well as giving them kind of a sandbox to play with. You know, when I built the forecast for my clients I didn't do it in applications they don't have access to. I did it an Excel spreadsheet where we listed out the pipeline clients and said okay, we think we're going to win these five. These two don't look so good. Then also throw the PPP loan in there, well we don't know if we have been approved for that yet, let's throw that in there as another possible cash source. Putting it together as an Excel spreadsheet, and then they can go through it at any time and say, oh wow, we just won these three clients, we lost these two, what does that do to our situation? They could play it through. So again, every time I meet with a client the first question I'm asking is hey, any updates on that forecast we built last week? Or on that forecast we updated last week? That way we know in real time where the data is at as more clients walked away, or they won more clients, or the PPP loan got approved, whatever those cash flows are you want to have those scenarios played out so when you talk to them you can say okay, what does that mean for this week's business? Oh yeah, we talked about it. We knew if you won, these three that meant you would keep hold on to these contractors. You can hold on to this employee. You didn't win these three, sorry. That means we have to let this person go unless we get the PPP loan. So it really has helped us find comfort. I know we talked about this quite a bit in our last podcast, but it is important to reemphasize that forecasting doesn't stop. It actually gets more detailed now that we have this low possibility and it's just built into that forecast.

Adam Hale: Yeah and sometimes the complexity of the forecasts is too much for Excel. So I know we're all Excel geeks, but just too many things can go wrong. So, you know, to your point, Jamie, what I do with a lot of my clients is I give them a sandbox to play in that is their sandbox. Then I have mine, that way I can also connect and grab information that I need because I don't know what the sales numbers are, and how they're changing, and ebbing and flowing with clients, so they can kind of play in with their document, make it a big picture view. Then I can easily just take that information, plug it into ours, and whenever we do meet say hey, here's some of the balance sheet. I've already given them guardrails. So I'm like hey, here's our guardrails, here's where we need to be. And so they have a good feel whenever they plug that stuff in where they're going to be. Then whenever I am jumping into the meeting, I can take that data, punch it in so they can see it in the big forecast and can see okay, here's my cash position. Here’s another tip. I'm also being aggressive with my AR. I hope this isn't true, but I upped my AR days with most of my clients just to kind of give them doom and gloom scenario in case people start stretching them out.

Jamie Nau: Again, you know, we talked about several times throughout this podcast forecasting the balance sheet, that's super important. So, you know, in our forecast, until you're able to say how quick we're going to collect AR. But even if you're just doing a cash flow meeting once a week, and you want to go through and say okay, let's see, these clients usually pay in 20 days. Let’s just bump them back 10 days just in case they don't pay. What does that mean for cash? Does that mean we're going to be leaning on our line of credit? Does that mean we're going to be in trouble? What does that mean for our cash 20, 30 days from now? So it just depends on the sophistication of your tools. So real quick, I want to throw our e-mail address out there. Again, we're always looking to make this podcast for the listeners. So if you guys have any topics, or you want to be a guest, feel free to e-mail at: cpa@summitcpa.net. We love to hear from you. We’d love to make the show more adaptable. So reach out. Again that email is: cpa@summitcpa.net. So with a couple of minutes left Adam, any final tips for out Virtual CFOs out there?

Adam Hale: Yeah, I guess the biggest thing is just try to get inundated with the information as much as possible. Get the latest and greatest guidance from the Treasury, and just try to keep your clients calm. I mean, let them know that, you know, we just got to work the process that's right in front of us. Everybody's in the same boat. Make sure you're communicating with them on a regular basis. I just call them on their cell phones, even in between formal meetings. I just say hey, just wanted to see if you needed anything. Just following up, making sure that, you know, X, Y, Z person was able to get stuff. I've been doing that on a pretty regular basis. And then, like I said, just be ready with the forecast, because I think that the hard work is probably still ahead of us in terms of making sure this money is spent appropriately and planning for the future.

Jamie Nau: Yeah I guess my final note is, and Adam briefly touched on this, but not only for your clients, but also especially if you have a very specific vertical, make sure you communicate into that vertical as well. You know, we've been communicating with some of our industry groups, getting the same information out to them. So that way, even people that aren't our clients know that they have a trusted source, and that someone can help them. That's the other thing we've been doing is we've been doing webinars for certain organization we work with. Maybe only half our clients are part of the organizations, it's more just to make sure people know that when it comes to situations like this, Summit is an expert. So that's something else you can do. Even non verticals, what I've been doing is there are a couple of groups I follow, Facebook groups I follow that have business owners, and I just reach out to say hey, if anybody has any questions on this stuff, reach out to me. I want to help. It makes me feel good. It's not really a Summit initiative. It’s something where I want to help as much as I can during these trying times. I have small business owner friends, or know of small business owners, and even if they're people I've never talked to, were part of a similar group, I want to help wherever I can.

That's something else you can do as well, just really be out there and communicate to people that are not necessarily clients, but people that, you know, at least know who you are and know that you have some expertise in this area.

Adam Hale: Absolutely. 

Jamie Nau: Awesome. So that’s the end of today's show. We appreciate all the listeners, and I appreciate you, Adam, being so well versed in this stuff. Thanks.

PPP vs EIDL


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