Your PPP loan has been forgiven. Impressive! Now what?

Katie has been a teacher for 10 years, specializing in working with nonverbal children with autism and other neurodiversities. In July 2019, she realized she wanted to work with these same children in a more focused way in order to make a bigger difference for them and their families, and she started a therapy and education consulting business.

Her business was taking off and she was making big plans! And then in March 2020, COVID-19 shut everything down where she lived.

Even as a solo-taker with a relatively new business at the time, she was one of nearly 12,000,000 business owners able to apply for and receive a Small Business Paycheck Protection Program (PPP) loan. Administration in 2020. She was also able to switch to online services and lesson plans that got her cash flow through the worst of the foreclosure.

Katie met all the conditions necessary for her PPP loan to be canceled, and since her cash flow remained stable, she had an additional $ 12,000 in her business account that she was unsure of what to do with.

Another business owner, Mark, has had an accounting firm for 25 years and had 10 employees before the pandemic struck. He also qualified for a P3 loan in 2020 and received around $ 190,000 to cover his payroll. His company ended up having a better year than usual in 2020, and while he also qualified for the full PPP loan cancellation by meeting all the criteria to pay and retain his employees, when even ended up with over $ 200,000 in extra cash on his business balance. sheet.

Why is it important to talk about it now?

Because if you were one of the business owners who applied for and received a P3 loan to make sure that you would be able to keep your business open amid all the uncertainty of COVID-19, then you have ended up having a good or even a great year in 2020, you might be sitting on more money in your business than you’ve ever had before, whether it’s $ 12,000 more or $ 200,000 more or more.

If you’ve crossed out all your t’s and crossed out all your i’s and your loan has been canceled, that excess money is now free and clear to use as you see fit. This means that after all the bookkeeping was done, you spent the amount you received on a PPP loan for the expenses you were supposed to spend them on, and the money that is now on the margins of your business comes from sales and benefits.

It also means that you have the opportunity to put your finances on a stronger footing than ever before! So what steps should you take?

Step 1: Talk to your CPA or accountant. Make sure you have all the documents you need to show your loan forgiveness in case you are audited in the next 6 years, and find out about the distribution rules for your structure. specific business. Whether you are a sole proprietor, a partner in a partnership, an S corporation, or a C corporation, you need to know what your distribution rules are for your particular type of business.

Step 2: Determine the amount you need for a cash reserve in your business. It can vary depending on your industry, but having 6-12 months of fixed expenses in easily accessible accounts is usually a good amount to start with. Once you’ve determined how much to keep in reserve, set it aside.

Step 3: Determine how much money you have in your business that exceeds your cash reserve amount. This is the amount you can reallocate!

Step 4: Check your upcoming cash flow needs. Is your tax savings account on track to cover your typical tax bill? Is your retirement savings account on track to fully maximize your retirement savings for 2021? Are there any other expenses that you may need to cover in the next 6 to 12 months? If any of these accounts are low, consider supplementing them.

Step 5: Consider investing the rest for the future. Talk to your financial advisor about the best way to invest the remaining excess cash and / or how to invest your excess inflows now that your reserve accounts are all full!

We’ve all been through an uncertain year, but if your business has reached this point and you still have much higher cash balances than you need for a cash reserve, you are leaving huge potential for growth on the table. by leaving your cash on the sidelines. Developing a cash flow plan and knowing what you need to support your business, without staying on the sidelines too much, will allow your money to work as hard for you as you work for it.


Hannah Chapman is a Certified Financial Planner (CFP) and Wealth Advisor based in Cincinnati, OH who provides financial planning and investment management to entrepreneurs and business owners from coast to coast. Sign up for her weekly bulletin for even more content on wealth creation and entrepreneurship!

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