For businesses struggling to keep their doors open in the wake of the COVID-19 pandemic, the federal Payment Protection Program (PPP) can be a lifeline. Watching that PPP funding hit your account can feel like instant relief, but now the real work starts. Strategically using the PPP funds can be the difference between sink or swim for many business owners. Use these tips to help decide the best ways to spend your PPP funding to survive this period until business resumes its new normal.
1. Prioritize cash management
The eligible uses for PPP funds have changed slightly since its inception — a June 2020 amendment states that in order for the loan to be forgiven, 60% of the funds from the loan must be spent on payroll while 40% can be spent on bills such as rent or utilities. This gives business owners more freedom to negotiate expenses and potentially keep more cash on hand throughout the pandemic. Any business owner knows cash management is crucial to business success, and the PPP funds can help you make empowered choices, especially if you’re experiencing lower revenues.
The covered period for PPP funds now extends 24 weeks, which means you have six months to use your PPP funds. You don’t have to spend all your PPP money instantly and can use it toward this strategy. You can further shore up your cash reserves by collecting on outstanding invoices or negotiating on expenses, such as asking for a rent deferral. Keeping as much cash available as possible will give you options to act decisively as the situation changes throughout the pandemic.
2. Create a paper trail
Documentation is going to be crucial when it comes to successfully having your PPP loan forgiven. Consider opening a new low-cost checking account devoted exclusively to your PPP funds so your record-keeping is easy to track. This is especially important if you’re not hiring an outside accountant to help with your books. Use this account solely for payroll and bills you’re paying with your PPP funds. By creating a separate account, you’ll be able to easily show that 60% of funds from the account were used for payroll.
Also, make sure you’re keeping statements, bills, invoices, and records of payments. Keep hard copies of these documents on file and note all uses of PPP in your accounting system. The forgiveness process isn’t entirely clear yet, so the more documentation you have when it comes to how your PPP funds were spent, the better.
3. Evaluate your staffing needs
If you do need to lay workers off due to the pandemic, you have until December 31, 2020 to rehire them and still qualify for PPP forgiveness. This allows you flexibility since you don’t have to keep everyone on payroll throughout the entire covered period. Temporarily reducing your staffing costs means you’ll have to be more strategic about the responsibilities of each remaining employee, but it could be another way to keep more cash on hand, especially as jurisdictions work through the reopening processes and businesses continue to be impacted by public health guidelines.
So far there aren’t specific rules that dictate whether you can restructure compensation and still qualify for loan forgiveness, for example, by giving some employees bonuses or raises while laying others off. In general, the intentions of the program are to keep the same amount of jobs available at the end of the covered period.
If you want to stick with the spirit of PPP, a better solution might be finding a way to streamline the new responsibilities of your remaining staff by updating your processes. For example, an automated chatbot can easily text and nurture leads until your remaining sales staff are available to close the sale. You might find improvements like this work out better in the long run anyway: Recent data shows only 2.4% of consumers like when businesses call them, and an overwhelming 80% of customers feel that brands contact them inappropriately. Using this moment to rethink classic communication strategies might not be such a bad thing.
4. Trust your business judgment
Feeling bound to qualifying for PPP forgiveness could cause some business owners to go against their own business judgment when making strategic decisions about operating through the pandemic. For example, you might know how to reduce the size of your payroll so you can make your business viable for the long haul but realize that doing so could cause you to lose out on PPP funds. Instead of feeling beholden to the PPP funds, make smart business choices as if you didn’t have the PPP as a factor.
There’s no shame in reducing your business to focus on your core competencies. Local businesses are seeing strong community support right now. In fact, May 2020 data shows 52% of survey respondents want to see more local businesses in their communities. Sticking to what you know you can do well, even if it’s smaller or more local than you anticipated, can help you survive beyond the pandemic.