Right now, I wonder how small businesses are doing during the COVID-19 crisis. I know here at CAEA we’ve been helping our clients fill out paperwork for the Paycheck Protection Program and the SBA disaster loan. Seems that wrangling them to get their books together during the year has paid off and most have their applications submitted. We are just waiting to hear back from the bank or SBA. What has this crisis taught small businesses in handling its bookkeeping and tax preparation? The answer- That the bank and government expect you to have your numbers together no matter how small you are. What does this mean?
Know Your Numbers
And be ready to prove them
Knowing your numbers not only helps you run your company properly but by seeing how you are doing on a month to month basis, it can help you get a loan in a split second when you need it. Now, big companies have lines of credit with their banks open at all times. I always ask my smaller companies to get one if they can. However, a small business needs to only use those in an emergency, like the one we are in now with COVID-19.
Pay Yourself Properly
S-Corporations, partnerships and sole proprietors are obsessed with not paying any taxes. To do this, they do all they can not to show any income. However, a bank isn’t going to loan money to you if you don’t seem to be making any money during the year. They figure you are either flushing all of your personal expenses through the company to get the profit down or that you are just mismanaging the company and it’s doomed to fail. This is true even during a non-crisis time.
If you don’t know why your company doesn’t show much of a profit, you need to be talking to your accountant more during the year and develop a better payment process so you can help yourself in times of crisis.
Save For The Future
I hope you had an emergency bank account waiting for a moment like this. Just like personal finances, your business should have a fund waiting on the side in case of an emergency. If you don’t like keeping a large amount of money in the business, I don’t blame you. Just set aside a personal savings account designated for the business in case you have to infuse it with money during a crisis. What type of account is up to you. Just make sure it’s in an account you can get money when you need it. When you put the money back into the company, it’s considered either a loan or capital from the owner, not income.
Please think about who will run the company if something happens to you. Just like your personal will, you need to have a legal game plan in place for the business. Make sure if you have a son or daughter named in your plan to take over that they actually want to do it. There’s a difference between running the business and receiving income from the business. You may have to put a trusted manager in charge who knows your business and can advise your family on what to do. Just putting your offspring in charge who hasn’t worked with the business is just setting it up for failure if something happens to you. Please consult your lawyer on this.
Why do we even have our small businesses? For most of us, it was to have the freedom to do what we want and care for our families at the same time. So set up the business to do this in good and bad times. This takes tax and financial planning. You need your accountant, lawyer and financial advisor on board to advise you. You are never too small of a business to do this. Your business will only benefit from this planning.
Take care of yourself. Stay safe.
If you are interested in tax preparation and bookkeeping, please reach out to us at CAEA here. We are here to help you during these difficult times.