Budgeting Tips

As the COVID-19 pandemic has raged across the U.S. throughout much of 2020 and into 2021, small businesses have struggled to survive.  While many have not, others have used the federal government's Paycheck Protection Program (PPP) to obtain loans that are completely forgivable.  However, since there are deadlines to meet and other terms to ensure a loan will be forgiven, it is crucial for you as a business owner to know more about the process involved in applying for loan forgiveness.  To ensure that your PPP loan has the best odd of being forgiven, remember these key points along the way.

A Simplified Process

As a bit of good news, you will be glad to know the loan forgiveness application you will use has been greatly simplified since the program first began.  If you are a first-draw borrower who borrowed $150,000 or less, you won't need to submit any additional documentation.  Since nearly 90% of PPP loans issued during the first round that ended on August 8, 2020 were for $150,000 or less, chances are this will apply to your situation.

What are the Requirements for PPP Loan Forgiveness?

Whether you obtained a first-draw or second-draw PPP loan, the requirements for loan forgiveness are the same.  If you want your entire loan to be forgiven, it is required that you maintain both your staffing and compensation levels during your covered period.  

Also, the money you obtained from your PPP loan must have been spent only on eligible expenses during the covered period, with at least 60% of your money being spent on payroll costs alone.  If you received your loan in 2020, the covered period is 24 weeks after you obtained your loan.  However, if your loan was obtained in 2021, you can opt for either an eight-week period or the standard 24 week period.

What are Considered Eligible Expenses?

In the original PPP legislation, only payroll and the operating costs associated with your business were considered to be eligible expenses.  However, when the second round of relief was passed by Congress in 2020, the list of eligible expenses was expanded. As a result, eligible expenses now include not only payroll and operating costs, but also supplier costs, property damage, and money spent on worker protection.  Thus, if you had contracts in place with vendors before your covered period, suffered losses at your business due to looting, or had to purchase PPE for workers, install barriers, or expand your business to accommodate social distancing requirements, these expenses will be eligible for PPP loan forgiveness.  But remember, any costs associated with property damage that were covered by insurance will not be eligible for forgiveness. 

When Should I Apply for PPP Loan Forgiveness?

While you can apply for PPP loan forgiveness as soon as you have spent the funds from your loan or when your loan comes to maturity, it is extremely important to apply for forgiveness before your first loan payment would become due.  

No matter whether your covered period is for eight weeks or 24 weeks, payments on PPP loans are deferred for 10 months after your covered period ends.  Should you wait until after that deadline to apply for forgiveness, you'll be required to start making payments. 

Should you make the mistake of applying for forgiveness after your loan has already matured, you could be facing a financial disaster, since you won't be eligible for forgiveness.  Therefore, if your loan originated prior to June 5, 2020, your loan will mature two years following that date.  For loans received after June 5, 2020, these will mature five years after the date in which the loan was issued.  If you have questions about this aspect of PPP loan forgiveness, speak to your CPA.

How Do I Apply for PPP Loan Forgiveness? 

When you are ready to apply for PPP loan forgiveness, you should contact your PPP lender, who will then inform you of which loan forgiveness form you will need to use.  Since you may need to submit additional paperwork along with your form, especially if you are a second-draw loan recipient, keeping track of your paperwork along the way will make this process much easier.

As stated earlier, if you borrowed less than $150,000 on a first-draw loan, you will not be required to submit additional paperwork, and thus can use the simplified loan forgiveness form.  However, if you received a second-draw loan, you will be required to prove your revenue loss before the government will approve your loan forgiveness.

What Documentation Will I Need to Submit?

Along with completing the PPP loan forgiveness application, you may also need to submit various types of documentation to prove you spent the money from your loan in the required manner.  Remember that to be granted full forgiveness for your loan, you will need to show that at least 60% of your money was spent on payroll expenses, with the rest being spent on other eligible expenses discussed earlier. 

To prove your payroll costs, you may need to submit such paperwork as bank statements, third-party payroll reports, state and local quarterly financial reports, tax documents such as Form 1040 Schedule C or F, W-2 or W-3 forms, and perhaps other documents as well. 

As for your other costs, you will likely need to submit utility bills, purchase orders, canceled checks for such items as PPE, safety modifications, and repairs to your business, and anything else you feel may be relevant.  Since this process can be very time-consuming, complex, and frustrating, it is wise to work with your CPA along the way to make sure even the smallest of details are covered.

Since you put in the time needed to make sure you obtained a PPP loan to keep your business going during the pandemic, you should also put in just as much if not more time to make sure your loan is completely forgiven.  If you have questions about the process or require expert guidance on what types of documentation you need to submit, schedule a consultation with your CPA to make sure you don't miss critical deadlines.

Cash flow is one of the most common problems that all businesses face. It’s also one of the most crippling financial situations that business owners contend with. There are several steps you can take to reduce or eliminate your business cash flow issues. One or more of the following ideas will likely help your situation.

Invoice Immediately

Delays in invoicing cost businesses thousands of dollars every year. The biggest mistake that many in-house accounts receivables departments make is invoicing on a schedule. Some businesses are so busy that they may only send out invoices one a month. This is a huge obstacle to healthy cash flow. While other business transactions lend themselves best to schedules, your business should never make a practice of invoicing on a schedule. This ends up creating all kinds of cash flow issues. For example, what if you invoice every Tuesday and you render service to your highest paying client on Wednesday. Now you have to wait an entire seven days before you invoice for your largest future receivable? That adds seven days to the time they have to pay you, which doesn’t help your cash flow. As soon as you possibly can, send out your invoices for services or products rendered. Invoice immediately; ideally the same day that the service or product was delivered. Do this with all your clients and your cash flow problems should begin to disappear.

Make Payment Terms Shorter

One reason that you may have cash flow problems is that you’ve been too generous with payment terms. This is often the case with newer businesses that are eager to sign clients. Unseasoned business owners may not realize the impact that generous terms will have on their cash flow. Now that you do see the ramifications, it’s time to take a closer look at how long you’re giving your clients to pay invoices. For small business clients, your payment terms should be shorter; two weeks would be great, but 20-30 days is the norm. Larger companies often request a minimum of 45 days to pay, with 60 days being the norm. If you have a large corporation for a client or a government client, they may even insist on 90 days. It’s ironic that the larger the client—and presumably the larger their bank account—the longer they want to pay. In some cases, you do have to play by their rules, especially if it’s a corporation with blanket terms across all their vendors. It’s the price of doing business with them. But for small and medium sized business, you can definitely call the shots. Speak to the representative and tell them of your plan to reduce the payment due term. Then put the change in writing so their A/P department sees it. Finally, follow up to ensure that the shorter payment term is being adhered to. This small change in your invoicing practice will help to improve cash flow for your business.

Get on Retainer

One of the fastest and most effective ways to improve cash flow is to get on retainer with one or more of your clients. Retainer terms means that you’ll be paid the same amount on a regular basis. It’s income that you can count on when planning your budget. Most businesses that work on retainer rarely, if ever, have cash flow problems. If you have a business model that you don’t think would work on a retainer basis, consider this option: Ask one of your clients that routinely pays late if they’d be interested in paying in weekly installments toward their future invoices. This way, they aren’t hit with a large bill that they obviously have trouble paying, and you get the same kind of regular income that you’d get if you were on retainer. This way you are also helping to ensure that your invoices with this problematic client do get paid, albeit little by little.

Offer Multiple Payment Options

Another challenge for some of your clients might be the limited options you’re giving them to pay. If a client is cash poor, they may pay your invoices late, which gives you cash flow problems, too. You can help solve both of your problems by offering multiple payment options. For instance, you could offer payment by check, wire transfer or credit card. If you decide to offer payment by credit card, be sure to charge the client the extra 3% or so that the credit card processor will charge you. To implement this idea, print the new payment terms on the invoice itself, but also send out a separate letter or email to the client and to their A/P department so they’re aware of the additional payment options.

Don’t Procrastinate on Collections

The minute an invoice becomes overdue, don’t just “make a note of it” on your aging receivables report. Either you or someone in your bookkeeping department should contact the client and politely ask if the payment is on the way. Always be polite and understanding. Don’t alienate clients over collections. A late paying client is better than no client. Keep a friendly rapport so that the client will remain open and honest with you about any financial difficulties they’re having that are causing the late payment. Finally, be clear about collections laws. Collections regulations are very precise, and you always want to make sure you’re in compliance. If you aren’t comfortable making collection calls, you can outsource this type of thing to certain HR companies.

Cash flow problems can bring your business operations to a screeching halt. But these tips can help you keep money moving along the pipeline as it should. If you aren’t sure whether your company is facing cash flow problems, or which solution outlined above would work best for your business, consult with your CPA for insight.

The decision of when to draw social security benefits can have a lifelong impact on one’s ability to have sufficient enough funds to afford retirement. For too many retirees, an insufficient social security nest egg is all they have.

Waiting to collect social security benefits versus not waiting to collect social security benefits can be a difficult decision make. A number of factors need to be taken into account in order to make an intelligent and well-informed decision.

This article will highlight the impact of various situations on this decision.

US News makes the following case about whether or not it ever makes sense to take social security before the full retirement age:

While you’re eligible to start drawing Social Security at age 62, your monthly benefit is reduced by 25 percent from what you would receive at your full retirement age (66 or 67, depending on when you were born). If you wait until age 70, you can expect your monthly Social Security benefit to be 76 percent more than if you start drawing at 62.

In the article, Leann Sullivan, vice president at TFC Financial Management in Boston, makes this interesting point: “Probably the primary time is when there’s a health issue.”

Someone who can no longer work because of illness or who doesn’t expect to live very long would be smart to draw sooner rather than later, she says.

In addition, here are four situations in which it may make sense to take Social Security early, as US News also noted:

1. You can’t live without the money. For those who have no other source of income or not enough money to pay expenses, early Social Security may be necessary to put food on the table. “A lot of times it’s going to make sense for one of the spouses to collect a little bit earlier,” Lucey says. “There’s just a lot of cases where additional cash flow earlier in retirement makes a lot of sense.”

2. You don’t expect to live past age 80. According to the Social Security administration, a man turning 65 this year can expect to live to just over 84. For a woman, the expected age is 86 1/2. But people with terminal illnesses or serious health issues may know they won’t live that long, so taking Social Security early makes sense.

3. You can’t work but you aren’t eligible for disability benefits. Someone who had a physically demanding job may not be able to do that particular job anymore but isn’t considered disabled because he or she can do other kinds of work. For individuals who are otherwise in good health, seeking a new job at 62 may make sense. Others might be better off drawing Social Security.

4. You’re a widow or widower. Widows or widowers can draw from their former spouse’s benefits starting at age 60, and that does not affect their ability to draw their own benefits later. Divorced spouses or minor children may also be eligible for benefits.

This analysis looks at it from a similar but slightly different angle. The following five steps guide you on a methodical approach to evaluating this important decision:

Step #1 – Find Out Where You Stand

You need to know how much your benefits will be and when, exactly, you'll reach what the Social Security Administration (SSA) considers "full retirement age," the age at which you can receive those benefits without penalty. Your benefits are based on your lifetime earnings. If you're over 60 but not yet receiving benefits, you should receive a statement in the mail from the SSA reviewing your potential benefits at different retirement ages.

Step #2 – If you’re out of work or in financial trouble, take the money as soon as you can.

The earliest you can collect benefits is age 62. But you'll pay a penalty of 25% or more in your monthly benefits by filing before full retirement age. You also could lose more if you continue working while collecting a monthly Social Security check. Until the year you reach full retirement age, your benefits will be cut by $1 for every $2 you earn over a certain amount annually. That is why retirement experts generally suggest you wait until you reach full retirement age, or even older, before filing for benefits. But if you're unemployed and out of savings, or if you're only working part-time and finding it impossible to make ends meet, then none of the above is as important as your immediate need. The decision is really a no-brainer. Take the money as soon as you qualify.

Step #3 – If you’re working and in good health, wait at least until full retirement age.

If you're married, and you die before your spouse, he or she can often collect a survivor's benefit based on your earnings. But if you elect to take early benefits, your spouse will receive a reduced check after you're gone.

Step #4 – If you really like your job, wait even longer, but not beyond 70.

One of the oddities of Social Security is that full retirement age isn't the point at which you reach your maximum possible benefits. Keep working and paying into the system, and you can earn even more later.

Step #5 – Apply with Uncle Sam.

Once you've decided the time is right, applying is pretty simple. You can do it over the phone or online. The government says it can take as little as 15 minutes.

In conclusion, besides following the approaches outlined in the two reports above, we highly recommend you engage the services of a financial planner or other suitable professional should you have a desire to learn more about adding social security benefits to your portfolio.

What with all the talk about “cash flow” and “cash flow management,” it’s worth your while to gain a better understanding of what these terms actually mean.

Positive cash flow, for example, does not mean the business is profitable.

A business can be turning a profit, and at the same time the profitable business could be dramatically and dangerously close to the precipice of having to liquidate and go out of business. Arguably, positive cash flow is more crucial to the small business’s success than is net profit because you can’t pay your bills with net profit, you need to have cash to pay your bills.

As noted here, the definition of cash flow management for business can be summarized as the process of monitoring, analyzing, and optimizing the net amount of cash receipts minus cash expenses. Essentially, net cash flow is an important measure of financial health for any business.

According to a study performed by Jessie Hagen of U.S. Bank, 82% of businesses fail due to poor management of cash flow. If your business constantly spends more than it earns you have a cash flow problem. For small businesses, the most important aspect of cash flow management is avoiding extended cash shortages, caused by having too great a gap between cash inflows and outflows. You won't be able to stay in business if you can't pay your bills for any extended length of time!

As Entrepreneur observes in a recent report, new startups should fully understand that running out of money is one of the primary reasons that businesses fold shortly after a launch. This scenario is a proven statistic, but startups can avoid joining the ranks of failed businesses by being smart about how they spend their startup capital, as noted in the following five tips:

1. Know when you’ll break-even

Knowing the point at which you’ll break even won’t necessarily impact your cash flow, but it will give you goals to strive for and a ready-made target for forecasting where your cash should go in order to reach that goal.

2. Always maintain a cash reserve

Every startup should expect shortfalls. Having cash reserves for those lean times lessens the blow, the stress and the distractions, and allows you to stay focused on growing your business.

3. Collect receivables immediately

Try to make any invoices “due immediately” and limit the use of net terms longer than 15 days. If you can do so, delegate the task of keeping an eye on receivables and customer follow-up to get money in as quickly as possible.

4. Extend payables where you can

While you want to bring payments in as quickly as possible, work with your suppliers and vendors to get the best deal you can and extend payables to net 60 or more, if possible.

5. Make the best use of technology

Always back up your files and cash-flow spreadsheets. Not only will this keep your data secure from local file corruption or data loss/theft, but it will also make it easier for you to gain access from anywhere you have an Internet connection.

In conclusion, it’s fairly obvious that a lot of time and resources are at stake in this process known as “cash flow management.” There is a lot to lose if the management process is not embraced by management; but a lot to gain if the process is embraced and run well.

Last month we featured an article that provided a general overview of the types of bankruptcy available to debtors who have hit hard financial times. We addressed the fact that despite the purpose of bankruptcy, that it is supposed to be a mechanism for giving the debtor a chance for a “fresh start,” the ramifications of declaring bankruptcy are far reaching and drastic, to say the least.

The article made the following points:

Debtors facing foreclosure and/or excessive debts are too often under the misconception that declaring bankruptcy is the perfect solution to these problems. Bankruptcy stays put on your credit record for quite a long time making advancing in life incredibly difficult. In addition, the updated bankruptcy law, passed in 2005, includes severe restrictions that make it more complicated to file for bankruptcy.

What this follow-up article hopes to achieve is to shed some light on the types of debts that are not eligible to be discharged in bankruptcy. As noted by The Simple Dollar, it’s important to understand that bankruptcy is not the cure-all to your financial problems, and that not all debts are eligible to be discharged in bankruptcy. For example, If you owe back taxes or child support, bankruptcy will not be able to help you.

Simply put: non-dischargeable debts are debts that don’t go away when you file for bankruptcy.

As The Bankruptcy Site notes, neither Chapter 7 nor Chapter 13 gives you a perfectly clean slate. Yes, many kinds of debts can be wiped clean, but in both scenarios, some debts cannot be eliminated.

Lawyers.com gives the following list of debts that will not magically disappear when you declare bankruptcy:

Debts Incurred After You File Bankruptcy

Any debt you have before you file for bankruptcy will go away (get wiped out) as long as it’s dischargeable. But, after you file—even while the bankruptcy case is still pending—debts you incur remain yours.

Secured Loans

A common question potential bankruptcy filers ask is whether it’s possible to keep a house or car after filing. The answer is yes—as long as you continue to make the payments. Mortgages and car payments are common examples of what are called “secured” debts. Any time you promise to give back the purchased property if you don’t make your payments, you have a secured loan. Secured loans are non-dischargeable in bankruptcy (unless you give the property back).

Unsecured Priority Debts

Bankruptcy wipes out most unsecured debt, but it doesn’t eliminate “priority” unsecured debt. There’s almost no way to get rid of priority debts. They also get paid before other unsecured debts if money is available to pay creditors. Here are some examples of unsecured priority debts.

• Domestic Support Obligations

Your spousal support or child support payments aren’t dischargeable in bankruptcy. Child and spousal support generally encompass amounts necessary for the child or former spouse to meet basic living requirements. Money owed as a result of a marital property division is different than this kind of support—in some states it’s dischargeable.

• Income Taxes

Bankruptcy crosses lots of minds when the tax man cometh. While it isn’t impossible to discharge unpaid income tax debt, it’s tough to meet the requirements.

• Other Government Debts

Like taxes, many debts owed to the government (such as fines and penalties) are going to stay with you till the grave. But not all. If you aren’t sure how a given government debt will be treated, a bankruptcy attorney can assist you.

• Student Loans

Even though student loans aren’t “priority” unsecured debts, you can’t get rid of them in bankruptcy—that is, unless you can demonstrate that you have an “undue hardship.” A disability that prevents you from working can qualify as an undue hardship.

Debt From Fraud, False Pretenses, and False Representation

Trying to work the system can come at a steep price. One consequence might be your debt not being discharged. The trick here is that debts resulting from fraud, false pretenses, or false representation are dischargeable unless your creditor files a lawsuit in the bankruptcy case, called an “adversary proceeding.”

Debts You Didn’t List in Your Asset Case

Contrary to common belief, “not including a debt in bankruptcy” isn’t an option. You’re required to list all of your debts when you file for bankruptcy. If your case is an asset case (one where there is money to distribute to creditors), and you fail to list a debt, the omitted debt is non-dischargeable.

Examples of Other Debts That Are Never Discharged

• Child support and alimony
• Fines, penalties, and restitution you owe for breaking the law
• Debts arising out of someone's death or injury as a result of your intoxicated driving.

Between the discussion in last month’s and the current month’s articles on bankruptcy, it should be obvious that we are dealing with subject matter that is highly complex.

The bottom-line action point, however, is simple: If you happen to be entertaining the idea of filing bankruptcy, we recommend you engage the counsel of on attorney who specializes in bankruptcy matters.

Having to manage personal finances is one of the stressful realities that makes up a part of normal daily living. As a single person managing his or her finances, he or she doesn’t have to be concerned with coordinating financial management efforts with anyone else. However, if the scenario involves a couple, such as a husband and wife, an entirely new dynamic is introduced. In theory, at least, there should be some sense of coordination between both members of the couple. What affects one member of the couple affects the other member of the couple, right?

If you and your partner are like most couples, chances are, you fight about money. Numerous studies have shown that money is the No. 1 reason why couples argue — and many of the recently divorced say those battles were the main reason why they untied the knot.

We’ll begin with the following quick points, as noted by Key, that address a number of financial mistakes that partners can make that create serious angst in their relationship:

1 - Merging The Finances

The Wrong Approach: United we stand, divided we bank (i.e. separate bank accounts).

The Right Approach: It's yours, mine and ours (i.e. share the bank account).

2 - Dealing With Debt

The Wrong Approach: Your debt will ruin us; you must find a way to pay it off.

The Right Approach: It's our debt: Let's decide how to pay it off together.

3 - Keeping Spending In Check

The Wrong Approach: I'm a saver and you're a spender. That's the problem.

The Right Approach: We both spend, but on different things. Let's budget.

4 - Investing Wisely

The Wrong Approach: You're a risk-taker, I'm risk-averse. Hands off our retirement savings.

The Right Approach: Let's think in time frames and take as much risk as our goals allow.

5 - Keeping Money Secrets

The Wrong Approach: What my spouse doesn't know will never hurt him/her.

The Right Approach: Big financial secrets can ruin a marriage.

6 - Emergency Planning

The Wrong Approach: We're fine. We don't need to worry about money.

The Right Approach: Anything could happen. Let's plan for emergencies.

Examples of Financial Fights All Couples Have

In a piece by CNBC on the topic, the following examples of conflicts provide more insight about problems to avoid:

1 - Risk Taker vs Risk Avoider

One of you is more comfortable with the ups and downs of the stock market. If your spouse is intent on taking more risk than you're comfortable with - by putting more money into stocks, or investing in start-ups or buying Bitcoin - agree on a small percentage of your money that can be used in that way (no more than 5 to 10 percent) and a similar amount that you can save or invest as you wish. Then stick to your plan with the rest.

2 - Lending or Giving Money to Family and Friends

Forget about loaning money to friends and family in the majority of cases. If you can't afford to do it as a gift, don't do it at all - it won't end well. If you've already done it and you want to preserve the relationship, tell the recipient you're forgiving the debt, but that you don't want to be asked for more in the future.

In conclusion, the above points make it clear that good communication and teamwork is the real key to conflict-free financial partnership in marriage. A health dose of humility, patience, and selflessness will go a long way too because, after all, no one is perfect.