By Jamie Herzlich
Updated May 3, 2020 6:00 AM
The coronavirus pandemic has made most companies' cash flow come to a grinding halt or, best-case scenario, a slow trickle.
Federal funding dollars are limited, so companies have to explore all options to help cushion the blow and generate enough cash flow to get through these lean times.
“I feel like cash flow is just nonexistent right now for many businesses,” says Michelle Dunn, a Plymouth, New Hampshire-based credit and collections expert and author of “Ultimate Credit & Collections Handbook.” “Businesses are scrambling to stay afloat and trying to be creative on ways they can make money.”
Trying to collect on past due invoices is tricky now because of the cash flow crunch, she said.
But it’s still OK to reach out to owed accounts “to keep the relationship and communication open,” Dunn said. Perhaps work out a plan to amend payment terms or pay later if possible.
Conversely, consider calling creditors you owe and discuss a deferment or lower payments, she said.
Some companies were fortunate to secure funds through the first round of the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan program (see https://tinyurl.com/uz95q9t), but that funding eventually reached its limit.
A new round of PPP funding was recently approved, but it too has a cap.
“Federal loan programs are a good option … assuming they can be funded,” said Barbara Weltman, a Vero Beach, Florida-based small business and tax expert and author of J.K. Lasser’s “Small Business Taxes 2020.”
Other options include:
- Despite delayed tax filing deadlines, if you’re owed a refund file your 2019 returns now, Weltman says. Also under the CARES Act, if your business had a net operating loss for 2018 or 2019, you can carry back those losses for up to five years allowing firms to modify their tax returns to offset 100% taxable income for those years possibly resulting in a refund, she said.
- Also, as per the CARES Act, you can delay the 6.2% employer’s portion of the Social Security payroll tax through Dec. 31, 2020 and then pay 50% by Dec. 31, 2021 and the other 50% by Dec. 31, 2022, she said.
- Consider temporarily reducing or eliminating the company’s 401(k) contribution, Weltman says. That requires giving employees notice so they can reduce or change their salary contribution amounts, she said.
Another option is tapping into retirement funds. The CARES Act waived the 10% early withdrawal penalty with certain limitations (see https://tinyurl.com/ycquk4na)
While it may come to that, generally speaking “taking money from a qualified plan is the very last resort in my mind,” said Jon L. Ten Haagen, CEO of Ten Haagen Financial Services Inc. in Huntington. “These monies are a person’s future retirement.”
He’s had one client use that option.
Alternatively, federal funding is a good option if you can get it, he said.
John Robertson, owner of Hauppauge-based The Sexy Salad Catering Co. and The Veggie Side, missed the first PPP funding round.
He’s pleased that funding was extended and recently was approved to get PPP funding from this second wave.
He’s brought in a few employees here and there for larger orders, but mainly is operating solo. He’s doing about 10% of revenue he normally brings in and that’s by finding ancillary revenue streams.
For example, when the pandemic first began, he started an outdoor farmers market. It was meant to be a one-time deal to liquidate produce, but got such great turnout he continued it.
He also started doing curbside orders and fruit and veggie deliveries within a 5-mile store radius.
“I didn’t want to lose touch with the community and I saw a need,” he said, noting it’s helping bring in some revenue stream.
Similarly, Jennifer Petrocelli, executive director of The Preston House & Hotel in Riverhead, started offering curbside pick-up dining options since the pandemic.
To help with cash flow, they also joined the Dining Bond Initiative, which works like a savings bond where consumers can purchase a gift card at a “value rate” and it can be redeemed at full value in the future.
So at The Preston House, customers spend $75 and get a gift card valued at $100 to be used when the restaurant reopens.
The program was started by Huntington-resident Helen Patrikis, president of HP-PR, and Steven Hall of Manhattan, president of Hall PR, to help struggling restaurants.
It now has about 500 participating restaurants worldwide, Patrikis said.
“We’re starting to get people to sign up,” said Petrocelli, who also secured PPP funding.