Coronavirus Guidance for Small Businesses

Your team at Faragalla is working relentlessly to compile sound financial advice to help you get through these tough financial times.  You are worried about loss of revenue, business continuity, and employee retention all while your bills are beginning to pile up.  We do not have a one-size fits all solution but have compiled guidance to help.  Further, we recommend clients start planning for a prolonged status of the current business environment.  

Revenue Generation:

There are three options to consider when thinking about increasing cash flows during this time. 

  1. Adaptation – your business needs to be creative and find new solutions to produce revenue during this time. Try outlining your organization’s strengths and weaknesses while identifying opportunities and threats in the current business environment.  Restaurants have started pushing carryout and delivery, technology companies are pushing to remote workforces, and medical practices are pushing virtual consultations. How can you adapt?
  2. Borrowing – The Small Business Administration has been authorized to provide COVID-19 disaster assistance loans up to $2 million to assist with revenue loss. Alternatively, traditional financing has low interest rates at this point which makes borrowing a little more attractive.
  3. Insurance – Contact your insurance provider for details on loss of income reimbursement in your policy and workers compensation coverage benefits.

*Note for landlords – Maryland has enacted a policy where you cannot evict COVID-19 affected tenants which includes loss of employment.  Be transparent and proactive with your tenants so they feel comfortable speaking to you about payment arrangements.

Employee Retention:

There are some difficult discussions within many organizations about how to retain their employees during these times.  We have a few suggestions to consider when it comes to making these tough decisions:

  1. Remote work capabilities are saving businesses. 
  2. Remember that good employees are hard to find – a little compassion now can go a long way in the future.
  3. Transparency with staff about financial implications of the current business environment and having a plan is key.
  4. Consider having employees take their vacation time now if they can’t work remotely.
  5. Ask employees if they would consider donating their vacation time to a leave bank to help other employees in need of extended time off due to illness.
  6. If you must cut payroll you should consider reducing hours across all staff instead of terminating one employee.  It could help restore morale knowing that employers are doing everything they can to help.
  7. Inform employees that a reduction in hours qualifies them for unemployment benefits  *Remember your business Unemployment Insurance rate will increase.

Accounts Payable:

Cash flow restrictions will lead to accounts payable issues which is why you need to start analyzing your payables immediately. 

  1. Take advantage of Payroll and Income tax payment extensions which are penalty and interest free.  See below for more details.
  2. Review contracts for credit terms to determine accounts with 30, 60, or 90 day credit terms.  Delay these payments until they are due.
  3. If you are unable to make a payment – be upfront with the vendor and try to work out a payment arrangement.
  4. A last resort is negotiating a lower balance with vendors if you are unable to pay. *Remember that cancellation of debt income is taxable.

Tax Attributes:

Here is a list of key tax relief items for Federal and Maryland impacting businesses:

  • Federal
    • Federal income tax payments for Corporations, Partnerships, and Individuals are extended until July 15, 2020 and will not include penalties or interest, however, the tax returns are still due by April 15, 2020.  Note: there is no waiver for the failure to file penalty so you will still need to file an extension by April 15 if you cannot file timely.
    • There is still a tax relief package working its way through the legislative branches which we will monitor and update you immediately. These are expected to include refundable tax credits for self-employed individuals.
    • Qualified disaster relief payments made to employees are deductible to the employer as payroll while not being treated as taxable income to the employees.  This includes any amount paid for personal, family, living, or funeral expenses.
      • Please note the government has not declared a federal disaster yet.  However, you should be in contact with your tax advisor to inform them of your payments to employees during these times so they can ensure proper treatment should a disaster be declared.
  • Maryland
    • Income tax payment deadlines for individuals and businesses are extended until July 15, 2020 without penalties and interest, however, the filing date is still April 15, 2020.
    • Certain Maryland payroll tax, sales and use tax, and excise tax returns have an extended filing date of June 1, 2020 to help free up cash flow during this time.

About Us:

Faragalla and Associates is a full-service public accounting firm in Frederick Maryland specializing in caring about our clients.  We look for both preexisting and new legislation that can benefit our clients while maintaining a local firm culture.

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