On May 15, the SBA released the forgiveness guidelines and application for loans made under the Paycheck Protection Program Loan program.

To qualify for forgiveness the applicant should have use at least 75% of the loan proceeds for eligible payroll costs over the 56-day period from the date that the loan was disbursed.
Eligible payroll costs consist of compensation to employees in the form of salary, wages, commissions, cash tips (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation.

In addition, the remaining 25% of the loan proceeds should have been used for the following:
covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”); (b) covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and (c) covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”). An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.

You must complete the application for forgiveness and submit it to your lender after the covered period expires and prior to the start of the repayment period on the loan. If you need help in preparing the application, feel free to contact us and we will be willing to assist you and your lender.  These guidelines are also the first release. Keep in mind the PPP program is an evolving program and it is possible that the forgiveness criteria may change. I will attempt to keep you informed with any changes as they become available.

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.

The loan amounts will be forgiven as long as:

1. The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and

2. Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

Loan payments will be deferred for 6 months.

When can I apply?

Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Where can I apply? You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating.

Visit www.sba.gov for a list of SBA lenders.

Who can apply? All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries

For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries or (2) that are franchises in the SBA’s Franchise Directory or (3) that receive financial assistance from small business investment companies licensed by the SBA. Additional guidance may be released as appropriate.

What do I need to apply? You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020.

What other documents will I need to include in my application?

You will need to provide your lender with payroll documentation.

Do I need to first look for other funds before applying to this program? No. We are waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement).

How long will this program last? Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.

How many loans can I take out under this program? Only one.

What can I use these loans for? You should use the proceeds from these loans on your:

1. Payroll costs, including benefits;

2. Interest on mortgage obligations, incurred before February 15, 2020;

3. Rent, under lease agreements in force before February 15, 2020; and

4. Utilities, for which service began before February 15, 2020.

What counts as payroll costs? Payroll costs include:

1. Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each

employee);

2. Employee benefits including costs for vacation, parental, family, medical, or sick leave;

allowance for separation or dismissal; payments required for the provisions of group

health care benefits including insurance premiums; and payment of any retirement

benefit;

3.State and local taxes assessed on compensation; and

4. For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

How large can my loan be? Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How much of my loan will be forgiven? You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

You will also owe money if you do not maintain your staff and payroll.

Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.

Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I request loan forgiveness? You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

What is my interest rate? 0.50% fixed rate.

When do I need to start paying interest on my loan? All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due? In 2 years.

Can I pay my loan earlier than 2 years? Yes. There are no prepayment penalties or fees.

Do I need to pledge any collateral for these loans? No. No collateral is required.

Do I need to personally guarantee this loan? No. There is no personal guarantee requirement.

***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***

What do I need to certify? As part of your application, you need to certify in good faith that:

1. Current economic uncertainty makes the loan necessary to support your ongoing operations.

2. The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.

3. You have not and will not receive another loan under this program.

4. You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.

5. Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

6. All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.

7. You acknowledge that the lender will calculate the eligible loan amount using the taxdocuments you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

The Act contains significant financial assistance that most business’ will be able to access, particularly relating to new money available through the Small Business Administration (SBA). While the details for obtaining these federal dollars are still to come, it’s important for you to be aware of the potential availability of funds as you plan for the near future in operating your business during the realities of this pandemic.

This bill, known as Phase 3, is extremely beneficial for business of all sizes and includes generous and unprecedented provisions to help provide liquidity for business and to help businesses keep their employees on the payroll.

The following provides a preliminary summary of provisions of most interest to you

Small Business Loan Provisions
A completely new, temporary lending program to aid small business The bill will provide $349 billion to support loans through a new Paycheck Protection Program, which Congress designed to keep employees on the payroll and save small businesses. The Small Business Administration (SBA) will stand up a completely new program that will only nominally be part of the existing SBA Section 7(a) loan program. To expedite the funding of the new loans, the Treasury Department and SBA will expand the number of participating banks and credit unions, and captive finance companies may also be included.
Minimal eligibility requirements Any business operational on February 15, 2020, that paid salaries and payroll taxes will be eligible, but there is a limit of no more than 500 employees. For business’, there will be no test for total revenue.

Borrower certification to obtain loan Borrowers will be required to make a good-faith certification that the loan is necessary due to economic conditions caused by COVID-19 and that it will use the funds to retain workers and maintain payroll, lease and utility payments.

Loans have terms NOT found in traditional bank loans Lenders will not require application fees, closing costs, collateral or personal guarantees. The maximum interest rate will be 4%, and the first six months’ payments (principal and interest) will be automatically deferred. Finally, the lenders are not expected to perform credit analysis, because the loans will be 100% guaranteed by the SBA.

Maximum loan amount The maximum amount will be 250% of an employer’s average monthly payroll (based on a 12-month look back from the date of the loan), but NOT MORE than $10 million.

Permitted uses of the loan The loan can be used for “payroll costs,” which include salary, commission, or similar compensation (up to an annual rate of pay of $100,000 per employee); employee group health care benefits, including insurance premiums; retirement contributions; and covered leave from February 15, 2020, to June 30, 2020. Permitted uses also include payments of interest on mortgages, rent, utilities and interest on any other debt obligations that were incurred before February 15, 2020.

Loans may be forgiven In general, borrowers will be eligible for loan forgiveness equal to the amount of certain expenses spent during an eight-week period after the origination date of the loan. These expenses are payroll costs, interest payments on any secured debt incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.

Percentage of employee retention related to amount of loan forgiveness The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year, and by the reduction in pay of any employee in excess of 25% of the employee’s prior-year compensation. However, to encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire previously laid-off workers by June 30, 2020, will still qualify and not be penalized for having a reduced payroll during the loan period.

No effect on federal Income tax Canceled indebtedness under this program will not be included in the borrower’s taxable income.

Loan amounts not forgiven Any loan amounts not forgiven at the end of one year will be carried forward as an ongoing loan with terms of a maximum of 10 years at 4% interest or less.

Tax Provisions Applicable to All Businesses
The CARES Act contains many business-friendly tax provisions that will assist business’ in maintaining liquidity during the disruptions caused by the ongoing coronavirus outbreak:

Net operating loss (NOL) carryback Business’ will be permitted to offset losses in 2018, 2019 and 2020 against profits from the prior five years. NOL carryback was previously eliminated by the Tax Cuts and Jobs Act (TCJA) in 2017. This provision may provide business’ with losses in 2020 with substantial refunds. Losses that are used to offset pre-TCJA profits, which were taxed at a higher rate, will be refunded at pre-TCJA tax rates, providing an additional boost.
Modification on losses for taxpayers other than corporations The TCJA generally limited the amount of losses noncorporate taxpayers, including pass throughs, could claim to $500,000. Under the bill this limitation is suspended, allowing business to utilize excess business losses along with the new NOL carryback provisions to access critical cashflow.
Qualified improvement property (QIP) technical fix The TCJA intended for businesses to deduct improvements made to retail property immediately under the TCJA’s bonus depreciation provisions, but due to a drafting error the depreciation lifespan was set at 39 years. This bill corrects this error retroactive to 2018. Business’ with significant outlays on QIP in previous years should consider amending their 2018 and 2019 returns to claim the deductions and receive a refund.

Interest deductibility limit increased The TCJA limited the deductibility of business interest to 30% of a business adjusted taxable income, except for floor plan financing interest, which remained 100% deductible. The bill allows businesses to deduct up to 50% of their adjusted taxable income for 2019 and 2020. Business’ should note that, coupled with the proposed IRS rules on the interplay between bonus depreciation and floor plan financing interest, if their total business interest, including floor plan financing interest, amounts to less than 50% of adjusted taxable income for these years, they may also be able to avail themselves of the bonus depreciation provisions in TCJA. Business’ unable to use full expensing in 2019 due to interest expenses between 30% and 50% of their adjusted taxable income may be able to generate refunds by filing an amended 2019 return.
Employee retention credit Business’ who have been forced to close their business due to a government-mandated shutdown will be allowed a refundable payroll tax credit for retaining their employees. The credit is generally available to business’ whose operations have been fully or partially closed due to a government mandate and whose gross receipts have declined by more than 50%. For business with 100 or fewer employees, all employee wages qualify for the credit regardless of whether the business is shut down or not. The credit is limited to the first $10,000 of compensation paid per employee. This credit is available through the end of 2020.
Delay of payroll taxes The bill allows businesses to delay the 6.2% employer portion of the Social Security payroll tax for the remainder of 2020. The delayed tax liability would then be paid back apportioned equally over the following two years.

Business owners handle their own bookkeeping for many reasons; among them, keeping costs lean and information confidential. While valid concerns for small or start-up operations this becomes impractical as the business grows.

Most business owners discover that hiring professionals generate cost – value benefits while freeing the owners to concentrate on the core business issues, the things that made them successful in the first place. These benefits include:

1. Finding cost savings
2. Saving money of taxes
3. Managing paperwork
4. Handling payroll and payroll reporting.
5. Avoiding fines and penalties for not filing proper documents or reports on a timely basis.
6. Forgetting to pay bills or invoice customers.
7. Generating accurate financial statements to provide creditors and bankers

Deciding on what type of staff you need is a complex decision. Your needs will change over time, and as your business grows you’ll cycle through several of these positions.

Bookkeeper

A bookkeeper will record transactions and usually do not participate in setting business strategy. A talented bookkeeper can provide you with options, keep you records and reports current and accurate. Their primary job is to keep track of the business and financial transactions and produce reports. Bookkeepers are transactional focused.

When to hire a bookkeeper

1. When paperwork begins to compromise your time management, job satisfaction or efficiency
2. Your business experiences rapid growth in a short time
3. Bankers and creditors need accurate financial information for loans
4. You are spending more time doing the books then generating sales or new business
5. You plan to expand
6. You plan to buy or sell equipment

Hiring a bookkeeper can be outsourced to a professional accounting firm who have bookkeepers on staff and can perform the function at a fraction of the cost of hiring a full-time bookkeeper. This is a good move especially if you are not sure of what you need done or cannot find a suitable applicant.

Controller

Controllers supervise the accounting staff and report to a CFO or the business owner. A controller is the company’s chief accounting officer and is responsible for preparing financial statements, budgets, taxes, and compliance with business regulations.

When to hire a controller:

1. When you need to provide financial reports on a regular basis to banks, creditors or shareholders.
2. You have the need to design financial policies and procedures
3. There is the need to design internal controls to protect company assets
4. There is a desire to prepare and monitor budgets.
5. Owners need advice on markets and trends
6. Business needs help in being proactive on tax strategies
7. Choices need to be made on software
8. Need to monitor receivables and pursue collections and grant credit to customers to improve cash flows
9. There is a need to monitor spending and payment of invoices.

Most small companies cannot afford a full-time controller but can afford a part-time controller or outsource the function to a consultant or accounting firm. Controllers are tactical focused.

Chief Financial Officer

Chief financial officers (CFO’s) assess the costs of doing business and the risks and threats that exist. CFO’s work with key officers, owners and directors and play critical roles in oversight, regulatory compliance, important company initiatives such as research and development and marketing.

When to hire a CFO:

1. There is a need to guide a company through a merger, acquisition, or change in business structure or operation.
2. To manage business expansion into new markets
3. Managing assets and financial relationships with multiple stakeholders
4. Streamlining operations
5. Assessing and managing financial risks
6. Planning short and long-term financial goals
7. Plan investment of corporate assets
8. Interpret financial indicators and business trends

CFO’s are more strategically focused. While a good CFO demands a large salary and sometimes ownership interest in the company, this position can be contracted to an individual or an accounting firm.

At Maxwell & Associates, we can help you with any or all these functions on a contract basis at the fraction of the cost of hiring a full-time employee. We have the expertise and systems to meet your needs and allow you to spend more time on doing the things that made you successful.
Feel free to contact me at craig@maxwellcpa.com, visit our website at www.maxwellcpa.com or call me 870.364.8992

The new year has begun. Does your accounting to-do list look like a clean slate, or are critical tasks from last year still nagging?

Getting all of your accounting tasks done in December is always a challenge. Besides the vacation time you and your employees probably took for the holidays, there are those year-end, Let’s-wrap-it-up-by-December-31 projects.

How did you do last month? Were you ready to move forward when you got back to the office in January? Or did you run out of time and have to leave some accounting chores undone?

Besides paying bills and chasing payments, submitting taxes and counting inventory in December, there’s another item that should have been on your to-do list: creating end-of-year reports. If you didn’t get this done, it’s not too late. It’s important to have this information as you begin the New Year. QuickBooks can provide it.

A Report Dashboard

You may be using the Reports menu to access the pre-built frameworks that QuickBooks offers. Have you ever explored the Report Center, though? You can get there by clicking Reports in the navigation toolbar or Reports | Report Center on the drop-down menu at the top of the screen.

QuickBooks’ Report Center introduces you to all of the software’s report templates and helps you access them quickly.

As you can see in the image above, the Report Center divides QuickBooks’ reports into categories and displays samples of each. Click on one of the tabs at the top if you want to:

Memorize a report using any customization you applied.
Designate a report as a Favorite
See a list of the most Recent reports you ran.
Explore reports beyond those included with QuickBooks, Contributed by Intuit or other parties.
Recommended Reports

Here are the reports we think you should run as soon as possible if you didn’t have a chance to in December:

Budget vs Actual
We hope that by now you’ve at least started to create a budget for this coming year. If not, the best way to begin is by looking at how close you came to your numbers last year. QuickBooks actually offers four budget-related reports, but Budget vs Actual is the most important; it tells you how your actual income and expenses compare to what was budgeted.

Budget Overview is just what it sounds like: a comprehensive accounting of your budget for a given period. Profit & Loss Budget Performance is similar to Budget vs Actual. It compares actual to budget amounts for the month, fiscal year-to-date, and annual. Budget vs Actual Graph provides a visual representation of your income and expenses, giving you a quick look at whether you were over or under budget during specific periods.

Income & Expense Graph

You’ve probably been watching your income and expenses all year in one way or another. But you need to look at the whole year in total to see where you stand. This graph shows you both how income compares to expenses and what the largest sources of each are. It doesn’t have the wealth of customization options that other reports due, but you can view it by date, account, customer, and class.

A/R Aging Detail

QuickBooks’ report templates offer generous customization options.

Which customers still owe you money from last year? How much? How far past the due date are they? This is a report you should be running frequently throughout the year. Right now, though, you want to clean up all of the open invoices from last year. A/R Aging Detail will show you who is current and who is 31-60, 61-90, and 91+ days old. You might consider sending Statements to those customers who are way past due.

A/P Aging Detail

Are you current on all of your bills? If so, this report will tell you so. If some bills slipped through the cracks in December, contact your vendors to let them know you’re on it.

Sales by Item Detail

January is a good time to take a good look at what sold and what didn’t before you start placing orders for this coming year. We hope you’re watching this closely throughout the year, but looking at monthly and annual totals will help you identify trends – as well as winners and losers.

QuickBooks offers some reports in the Company & Financial and Accountant & Taxes categories that you can create, but which really require expert analysis. These include Balance Sheet, Trial Balance, and Statement of Cash Flows. You need the insight they can offer on at least a quarterly basis, if not monthly. Connect with us, and we can set up a schedule for looking at these.