You got your clients the PPP loan. Great! They got the funds they need to continue operation during the Covid-19 crisis. Fantastic! But now the most difficult part starts: Loan forgiveness.
Client’s Will Need Loan Forgiveness To Survive
Without PPP loan forgiveness, this entire effort will be in vain. If they don't get the forgiveness, it will kill their business when they have to pay it off.
Without loan forgiveness, your clients will have to pay off the loan in two years. The SBA will defer the loan payments for the first 6 months. In this period, interest is still accrued. After the 6 months, the client has to pay off the loan in the remaining 18 months. This will amount to an extra +14% spend on payroll every month in that period. Before Covid-19, many businesses would struggle with such a large increase in expenses. Their profits were already too low. Add fading revenue to the upcoming recovery, and it will be a killing blow.
Make sure to join Johan Colvig for his webinar "Learn How to Manage & Advise on PPP Forgiveness," on May 20 at 2:00 p.m. Eastern Time. Register here.
Take Charge Of The PPP Forgiveness
You need to be on the top of the PPP forgiveness from the day your clients receive the funds. Payroll must be 75% of the PPP loan, or there will be no forgiveness at all. If your client has reduced employee salary, that will reduce the forgivable amount. These are a few examples. There are many more rules to follow to get loan forgiveness.
Set up a meeting with your client about the PPP forgiveness process. You might ask questions such as:
- How do they plan to pay their employees during the 8 weeks following receiving the PPP loan?
- What will the consequence of this be?
- Will they be able to get forgiveness?
- Or do they need to make changes right away?
Prepare in advance, and make sure to have a PPP forgiveness forecast calculator available.
Also, get an overview of their rent, mortgage, and utilities expenses. Include these expenses in the forecast as well.
Update The Forecast On A Regular Basis
When your clients have paid forgivable expenses, they should update you right away. It is important that they include receipts and payroll registers in this update. Once you have received them, update the accounting and the forecast right away. Are the numbers on track? Or does your client need to make extra adjustments?
Be sure to send your client the updated forecast right away. This will bring peace of mind to your client. It will also increase your client's confidence in you. And in your client's eyes, you are becoming a trusted advisor. When the Covid-19 crisis is over, you can continue to build your advisory practice on this experience.
A word of warning: Not all PPP calculators on the market are correct. Some of the large vendors have released calculators that don't include all parts of the calculation. AICPA has released a reference PPP calculator. However, the calculator from AICPA isn’t built for forecasting. Some vendors like MoreReporting have built PPP forecast calculators that are aligned with the AICPA calculator.
Prepare Documents To Lender For Forgiveness
The SBA has released the documentation requirements for the PPP forgiveness. Documentation for payroll, FTEs and nonpayroll must be submitted with the application. In addition to this, there is a list of documentation that must be maintained. These include calculations, documentation of 2019 salaries, PPP eligibility, etc. The documents must be retained for 6 years. The SBA can request the documents in this 6 year period for audits.
If your client fails to provide the required documentation, the SBA can determine that they were ineligible for the loan in the first place. It is, therefore, very important that you get these documents prepared now. Also make sure that they are securely saved for the duration of the 6 years.
Photographer: Scott Wilhite
johan covig
Make sure to join Johan Colvig for his webinar "Learn How to Manage & Advise on PPP Forgiveness," on May 20 at 2:00 p.m. Eastern Time. Register here.
Author Bio: Johan Colvig has 15+ years of experience as an industry leader in the business intelligence space. He is also a co-founder and architect of MoreReporting, the most advanced financial analytics tool for QuickBooks. His core philosophy is "AI Assisted Advisory." He believes that AI should augment accountants to become advisors to their clients. Before MoreReporting, Johan was a co-founder of Infotrust A/S based in Europe. Infotrust was a leading SAP business intelligence partner. They won the Partner of the Year award 4 times in the Europe North region. He has 8 years of experience in teaching financial analysis. He has been a keynote speaker in different conferences in the US and abroad.