Your PPP loan was forgiven—what a relief! But now what? If you were one of the millions of business owners who secured a PPP loan to keep your business up and running through the pandemic, you may have ended up with a successful year in spite of it all. Below are a few steps to take to keep your business moving forward, as well as ways to be prepared should another catastrophic event happen in the future.
1. Talk with your financial expert to ensure you’re keeping the right records, even after your PPP loan was forgiven
Make sure to work with your financial expert to ensure you have all the proper documentation in case of an audit. Even though your PPP loan was forgiven, the SBA still has six years to come back and audit your loan forgiveness application. Even if you didn’t need to submit extensive records to gain forgiveness, you’re still required to keep those records in good order.
While you’re reviewing the books, make sure you have a strategy for allocating any unexpected revenue. For some this may mean working with a CPA; others may find it useful to bring in an outsourced CFO. Sometimes called virtual or fractional CFOs, these financial professionals work with businesses of all sizes on a short-term, long-term, part-time, full-time, or interim basis, depending on business needs and budget. A CFO can work with you to create budgets, make strategic financial and tax plans, offer guidance for growth, forecast cash flow, and much more. Having an expert on your side can ensure you’re making the most out of your cash flow and preparing for the future.
2. Plan for cash reserves
It’s important to maintain an adequate cash reserve to cover your business when the unexpected happens. Remember the time it took to receive those PPP funds? Many businesses were in a stressful bind while they waited for the money to hit their accounts. While experts recommend anywhere from six to twelve months’ worth of expenses in your cash reserves, that may be a stretch goal for some businesses. Start with what you can do and plan for the future—this is another area where a financial expert can support you in budgeting and allocating cash.
3. Check your upcoming cash needs
Think beyond the basics, such as rent, utilities, inventory, and payroll expenses. If you have worked with your CPA or CFO, chances are you have put together a tax projection to have an idea of your upcoming tax liability. If not, the fourth quarter is the ideal time to project your tax bill for the year because it leaves time to identify tax liability savings. Don’t forget to also budget for loan payments and other needs coming up in the next few months.
If you’re a small business owner, consider whether you’ve maxed out your retirement savings for the year. We frequently see entrepreneurs falling short in their personal retirement savings, always putting the business first. Saving for retirement is an important piece of many tax plans.
4. Consider reinvesting in the business
With cash in the bank and a solid plan to cover all liabilities, consider whether you have opportunities to reinvest in the business. Many businesses take the opportunity at year end to upgrade outdated equipment, invest in more inventory, hire additional staff, upgrade technology, or even pay down business loans.
Digitization has been a popular business investment area this year. The pandemic taught us all the importance of being able to do business regardless of staff and customer location. Cloud-based accounting apps provide business owners the ability to collaborate with teams from virtually anywhere. A properly digitized business puts an end to manual data entry and provides owners with a window into the company’s financials, up-to-date inventory, and much more. Those that already had cloud-based accounting solutions in place pre-pandemic were able to quickly adapt to COVID restrictions.
If you’re one of the lucky business owners who had their PPP loan forgiven and you came out on top, don’t pass up the opportunity to make the most of your positive cash flow. Our team would be honored to work with you to provide financial projections, budgeting, tax expertise, and growth guidance. Contact our team to schedule a consultation.