Board Converting News, July 20, 2020

A Three-Pronged Route (CONT’D FROM PAGE 20)

here that we see the opportunity to tie PPP support to the third priority: management of labor costs. We regard this as the single most important step a business can take to protect its profitability not just now, but in the post-COVID rebound to come. We recommend continually taking an objective look at staffing and making the necessary decisions about which positions are and are not essential to the functioning of the business. We know that some company cultures don’t permit laying off employees, and we respect those senti- ments. Keeping everyone on the payroll is acceptable as long as it doesn’t threaten the company’s survival. Unfor- tunately, and especially in a business climate like the one we are now in, the two aims are often incompatible. This makes it a mistake, in our view, to maintain staffing at 100 percent when sales are significantly less than 100% of normal. An even bigger error would be to try to cover payroll for non-essential positions with a PPP loan. Why? Because eventually, that money will be exhaust- ed, and though the loan may not have to be repaid, for- giveness comes at the cost of keeping positions that the business does not need – and thus act as a drag on prof- itability. Since there is no sure way of knowing what busi- ness conditions will be like at the end of the loan period, those positions could be just as burdensome to the com- pany as they were when it began. A better response would be to make judicious staff cuts

be used for the other eligible expenses: rent, utilities, and mortgage interest. PPP applicants can receive loans worth up to two-and-a-half times their average monthly payroll costs, subject to restrictions. The program’s most notable feature is its forgivability. This occurs if the average number of full-time equivalent (FTE) employees per month remains the same at the loan’s FTE measurement date as it was in an FTE reference peri- od prior to receipt of the funds. Then, the loan is 100 per- cent forgivable. Borrowers can choose either of two FTE reference pe- riods to compare against: February 15, 2019, through June 30, 2019, or January 1, 2020, to February 29, 2020. You have several options for choosing a measurement date, the latest of which is December 31, 2020. Maintaining the original FTE count at the FTE measure- ment date is the best-case scenario, as it may fully elimi- nate debt. If the FTE count is smaller at the measurement date, forgiveness is reduced proportionately, and the loan recipient will have to repay the difference – but at a very low rate of interest, and with up to five years to settle. How Not To Use PPP Funding This is a simplified explanation of how PPP lending works. Owners are urged to consult with their accountants to forecast eligible expenses and to find ways of maximiz- ing FTE counts at the FTE measurement date. It is precisely


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July 20, 2020

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