Mike McAninch is a Practice Integration Advisor with Buckingham Strategic Wealth, where he specializes in helping dentists connect their money and their values to realize their most important financial goals.
As a small business owner, your dental practice’s very survival may well be threatened by the present worldwide health pandemic. In an unprecedented series of events, many dentists find their practices closed, employees laid off, and no end in sight to the current crisis. What to do?
I’ve broken down my guidance into a series of three blogs. Today, I’ll tackle near-term actions. Next, I’ll follow up with a look at what your employees should know about the COVID-19 relief package – the CARES Act – just signed into law. Finally, I’ll look at steps for ramping your operations back up with the Paycheck Protection Plan (PPP). (Not to get ahead of ourselves, but here’s a look at a chart we put together to quickly compare the various CARES Act relief programs for business owners.)
So, your office is closed, the business needs cash, and your staff needs direction.
Cash flow management is the key to staying solvent while your office is closed. Two items that must be addressed immediately are to:
- Determine your cash reserves and lines of credit.
- Reduce spending as much as possible.
Drilling down a bit, here are five specific steps to consider:
1. Any emergency reserves that have been set aside are for events like this: unusual and unexpected business interruption. Use those reserves as needed to cover expenses while you are closed.
2. Also use a business line of credit to help cover expenses. If you do not currently have a business line of credit, I’d strongly suggest starting the process of opening one up as soon as practical. A consequence of this crisis has been extremely low interest rates. If time allows, consider reaching out to two or three banks, as some banks have started to increase interest rates to lower demand.
3. Approach your bank and request loan payment delays or modifications. You have been a good customer of the bank; now is the time they need to return the favor!
4. Delay all income tax estimated payments and company contributions to your practice’s pension plans. Due dates for both taxes and pensions recently were extended.
5. Continue to monitor and, if possible, delay large purchases for the time-being.
In conjunction with these steps, I’d recommend you file online with the Small Business Administration (SBA) for an Economic Injury Disaster Loan (EIDL). One of the key features of this program is that, in addition to the loan, your practice will receive an immediate $10,000 grant to help with your cash flow. This grant will not have to be paid back, even if you are not approved for the disaster loan! If you need more than $10,000, you can borrow it. However, realize that you will have to pay back the loan amount. That’s why I’d generally recommend you utilize current lending arrangements (business line of credit) rather than obtaining a large SBA loan.
How will you use this $10,000 EIDL grant?
- Provide paid sick leave to employees unable to work due to the direct effect of COVID-19.
- Maintain payroll to retain employees during business disruptions or substantial slowdowns.
- Meet higher costs for materials unavailable from original sources due to supply chain interruption.
- Make rent or mortgage payments.
- Repay obligations that cannot be met due to revenue losses.
What about your employees? You most likely cannot pay them, and you may not know what to do. You probably will need to furlough much of your team. This almost certainly will be an emotional and painful decision (take heart, because our next blog will address unemployment benefits available to your team).
So, while you are closed, the specific steps you need to take as a business owner include:
1. Designate employees as essential or non-essential. For example, perhaps the practice owners are essential and all others are non-essential.
2. Maintain or reduce hours for essential employees. If hours are reduced, employees can file for unemployment to make up the difference. Retained employees may make you eligible for the employee retention credit in the CARES Act. The employee retention credit is equal to 50% of qualified wages. This credit is an immediate cash refund when you file your payroll taxes.
3. Furlough non-essential employees. This provides employment status while an employee pursues unemployment benefits. It is vital that you furlough and not terminate your employees. SBA loan forgiveness calculations are significantly improved if you maintain staff (versus terminating staff).
Still have questions? Please reach out to any of Buckingham’s Practice Integration Advisors. We are here to help!
Important disclosures: The material provided is for general information and education purposes only and does not constitute investment, legal, or tax advice. Individuals should seek independent tax advice from a tax professional prior to implementing a new strategy. This information can change without notice as additional guidance becomes available.