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Creating a New Business Mindset: Considerations and Opportunities in Light of COVID-19

Businesses around the country and the world are enduring some of the greatest hardships they’ve ever faced as a result of COVID-19.  Here in Baltimore, seeing some of the most beloved local restaurants, bars, and shops having to close their doors in an effort to protect themselves and the community has been commendable, yet heartbreaking.  But as all Baltimoreans know, this city is tough and will come out on the other side stronger than before.  While some of the businesses may not recover, there is reason for hope and a chance to find opportunity during this time of uncertainty.

With the extraordinary amount of information being released daily in relation to the status and handling of the COVID-19 and the resulting economic fallout, it can be difficult to wade through it all to determine what to focus on. As you begin to figure out the best course of action for your business, here are some considerations for opportunity and recovery:

Consider Exploring New Revenue Streams

Many companies have been able to pivot into a completely new line of business as demand for certain items has skyrocketed in the face of the pandemic.  For instance, local tailor shops have begun sewing protective masks, breweries have started producing hand sanitizer, and restaurants have swapped their dining rooms for pop-up grocery stores.  In doing so, these businesses have been able to supplement their income.   At the very least, this has allowed them to diversify revenue streams and assist in providing much needed cash flow, and in some circumstances, they are even thriving and busier than they were before.  While creating a new product or service offering is no simple or easy task, it’s worth exploring your options.

Analyze Cash Flow

Take a hard look at cash flows, consider your available options, and attempt to reduce expenses where possible and as appropriate, without jeopardizing core operations.  Develop financial forecasts using different scenarios accounting for both “best case” and “worst case” outcomes.  This will prepare you for the different trajectories that your business could take so that you can plan ahead accordingly. Your in-house accounting team and CPA firm can help you with this task.

Reach Out to Lenders and Suppliers

Keep the lines of communication open with your lenders on your ability to pay and be sure to convey your plan to alleviate the problems you’re facing. If you haven’t been receiving payments from your customers or clients, let your lender know immediately so you can address any deferral of principal and interest payments available. Also think about reaching out to your suppliers/vendors to see if you can agree on some level of discounted terms and/or slower payment terms that would delay your current payment obligations.  We are all facing challenges and most likely lenders and suppliers will be more than willing to work with you during these extraordinary times.

Tax Incentives and Extensions

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes multiple tax provisions aimed at boosting businesses’ free cash flow. One of these provisions is an employee retention credit in which eligible employers will be granted a refundable tax credit of up to $5,000 for each employee’s wages paid from March 13, 2020, through December 31, 2020. Another tax provision outlined in the CARES act provides qualified employers with the option to delay payment of their portion of Social Security taxes; half of it will be due December 31, 2021 and the remaining half will be due December 31, 2022.  Furthermore, income tax filings and payment extensions have been granted, providing companies with the much-needed liquidity required to maintain operations if revenue has drastically declined.  E&T’s tax professionals are prepared to answer any questions you may have regarding your business’ eligibility to participate in these programs and the steps you’ll need to take if you are.

Procure Additional Funding

The Small Business Administration is offering low-interest loan programs for working capital to businesses suffering substantial economic injury as a result of the COVID-19. One such loan program, the Paycheck Protection Program (PPP), has provided Maryland businesses nearly 28,000 loans, totaling over $6.5 billion. While this first round of funding has dried up, the Senate recently approved much needed additional funding for small businesses who may not have achieved funding in round one of the program. These loans are also eligible for full or partial forgiveness, depending on how the loan is used and the ability of the borrower to keep their workforce and related headcount stable. For more information on these programs and how to complete an application, please consult with your financial institution.

Business Interruption Insurance

Is your business covered by business interruption insurance? If so, the current pandemic should provide an opportunity to evaluate coverage terms and conditions, and your insurance agent may be able to submit a claim on your behalf, providing some much needed cash flow to your business if approved.  While there are many legal issues at play, legislation has been introduced in seven states that could require certain business interruption policies to cover COVID-19-based claims made by small businesses. Many law firms are assessing what options are available to troubled businesses, and this is just one of them. Reach out to your local counsel and insurance agent discuss your situation and any options you may have.

Consider Asset Transfers

Given the unprecedented shutdown of the economy, we realize that gifting, or asset transfers, may be the last thing on a business or estate owner’s mind.  Nonetheless, you should be reminded that the changes made to federal tax law in 2018 now allows individuals to transfer double the amount than was previously allowed, tax free.  This translates to about $11 million for individuals and $23 million for married couples.  Depending on the situation, it may be prudent to consider gifting during this time, when assets are significantly undervalued.  Moreover, with the upcoming election, it is uncertain whether or not these estate tax provisions will remain in place. Again, this recommendation will vary depending on each individual/family’s circumstances, and it’s important to consult with an estate and trust attorney or a valuation professional for guidance.

Recovery

When will businesses open up again? Will the summer be ready for beach-goers and vacationers? Will this recession and recovery take longer than it did after the 2008 financial crisis? No one knows.  When a recovery will be reached and what that will look like is up for debate, but what we do know is that there are opportunities to be gained and lessons to be learned from this unique event.  Those who are able to adapt and weather this storm will be even better equipped to survive the next one.

Ellin & Tucker is here to provide that hope and shed a light on opportunities for business leaders while offering support to the local business community, even if it is simply the opportunity to speak with someone who will listen.

Please give us a call if you want to know more about us, these opportunities, or what we have to offer.

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