CFO Roundup

PPP Update: Loan Forgiveness Application Released

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On May 15, 2020, the Small Business Administration (SBA) and the U.S. Treasury Department published a Loan Forgiveness Application for the CARES Act Paycheck Protection Program (PPP). As with other aspects of the PPP, it raises more questions while answering others.

Similar to the PPP loan process, we see additional guidance being released once the public has had an opportunity to digest the highlights below and communicate questions to the SBA.  When this additional guidance will be issued is uncertain, as the first forgiveness applications will not be due for another 2-3 weeks based on receipt of funds on or about April 10, 2020.

Here are some highlights of key topics arising from the text of the Loan Forgiveness Application and its related Instructions (together, the “Application”):

  • Borrowers with a biweekly or more frequent payroll schedule may use an alternative eight-week covered period (the “Alternative Payroll Covered Period”) that begins on the first day of the borrower’s first payroll period following its loan disbursement date.
  • Full time equivalent (FTE) employees are determined based on a 40-hour work week, with an option to treat all employees who work fewer than 40 hours in a week as one-half (1/2) of an FTE.
  • Prepayments of business mortgage interest during the covered period are expressly NOT forgivable. Prepayments of other qualified costs (e.g., employee bonuses) are not addressed, although it appears owner bonuses to absorb a PPP shortfall are not allowed.
  • Qualified non-payroll costs incurred during the covered period that are paid on or before the next billing date (even if paid after the covered period) are forgivable. Payments during the covered period of qualified non-payroll costs that were incurred prior to the covered period (e.g., deferred rent) may also be forgivable, but additional guidance is needed to clarify this point.
  • Reductions in headcount do not include employees who refuse a written offer to come back to work, quit or were fired for cause.
  • Reductions in salary or wages are calculated by comparing the employees’ respective average pay rates during the applicable covered period to their respective average pay rates during the applicable reference period.
  • Borrowers will be required to provide proof to support payroll and non-payroll expenses paid during the eight-week period following the disbursement of PPP funds. The documentation can take of the form of bank statements, payroll records, federal and state payroll forms, payment receipts and/or cancelled checks, lease agreements and statements and utility invoices, as well as health insurance and pension contribution statements.
  • Certification of the borrower’s authorized representative is required, attesting to the accuracy of the information included in the application.
  • The borrower also needs to separately maintain, but not include with the application, proof that no amount of the PPP was used to pay salaries in excess of $100,000 annualized cap.

We strongly recommend reviewing the forgiveness application to understand all the requirements and to ensure you can produce the information when the time arises. As always, we’re here to help, so please reach out to any member of the Magone team.

Stay tuned — it’s going to get interesting.

The Dos and Don’ts of Expanding Your Finance Team

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According to the Bureau of Labor Statistics, the employment of accountants and auditors is projected to grow 11% from 2014 to 2024, faster than the average for all occupations. So, it’s no surprise that your firm may be considering the expansion of its team.

Finding the right people for accounting and finance industry jobs can be a challenging task. Here are some valuable reminders to keep in mind to effectively recruit and hire:

Do research and set goals. With the money and resources at its disposal, how much new staff if your firm capable of accommodating? What can it reasonably accomplish? Are your goals specific and measureable? Analyze the stats and data you have available to make projections on how your business will fare in the future — and if more staff can better support its goals.

Do write precise job descriptions. To fill accounting and finances positions, a specific skillset, education and personality is often desired. Be sure to write detailed descriptions with pinpointing the job requirements and responsibilities. Highlight the niche experience and proficiencies that are required, so you attract the right candidates from jump.

Do leverage employee referrals. Within the next two years, 50% of the U.S. workforce is expected to be made up of millennials. Did you know that employee referrals are the most successful recruiting tactic for this demographic? By establishing an employee referral program, you can incentivize your employees to recommend suitable professionals, while helping your firm save time and money spent on recruiting.

Don’t forget the job boards. Seventy-one percent of finance and accounting professionals use online job boards like Indeed and Monster to search for open positions. Take advantage of both free and paid job options to get your firm’s available positions out there.

Don’t make these key interview mistakes. In today’s age, there are more than a few fair hiring laws to remember, from the Equal Pay Act to the Americans with Disabilities Act. One small misstep toward noncompliance and your firm could be liable for a costly settlement. During the interview, keep these subjects off the table:

  • A candidate’s age, except for proof that they’re at least 18 years of age
  • Affiliations, union membership or social clubs they may belong to
  • Marital or family status
  • Ethnic background or citizenship, except for proof that they can legally work in the U.S.
  • Criminal record, other than if they’ve been convicted of a crime
  • Personal aspects, e.g. home ownership or finances
  • Gender, race or religion

Don’t rush the process. When you’re battling the clock, you’re more likely to hire the wrong people, and a bad hiring decision can set you back. Focus on interviewing qualified candidates and hold out on an offer until you find the right one. Don’t waste time on someone who doesn’t win over your confidence.

Do stay consistent — and stay fair. Protect yourself and your firm by keeping interviews equal and unbiased. Adhere to a hiring process that asks all candidates the exact same questions.

A recent survey by Accounting Today revealed that accounting talent is increasingly hard to find. Robert Half research reports that 65% of CFOs say it’s challenging for them to find candidates. At Magone and Company, we know that hiring the right team is critical to your success. And finding the right candidate is worth the wait.

 

7 essential skills to succeed in finance (and they’re not related to numbers)

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To excel as a financial professional, you need a specialized skillset that goes beyond financial expertise, crunching figures and analyzing operational successes. Because if you can’t perform other basic functions of your job, it’s impossible to fulfill the full potential of a financial position.

Today’s financial professionals need to master these seven non-financial skills:

  • Marketing. You’ll never get anywhere if you can’t market your professional knowledge to your niche market. Potential clients need to know how you can help them better manage their assets. This starts by understanding your personal, as well as your firm’s own strengths, and how to best translate the benefits you can provide.
  • Communication. For a financial pro, verbal, nonverbal and written communication skills are non-negotiable — from the ability to communicate clearly while translating complicated data to recommending the best courses of action to your clients and constituents. Communicating nonverbally especially requires a keen awareness of any possible interpretations of gestures, expressions or body language that can affect how the message is received.
  • Relationship management. Your role at your firm involves lots of number crunching, but it all comes down to meeting the needs of your clients. From listening and understanding different personality types to asking the right questions and resolving conflicts, people skills are key to your job function.
  • Presentation. You know that old saying, “It’s not what you say, but how you say it”? When it comes to discussing financial information, this applies — particularly if you’re delivering not-so-great news.That’s why the finance industry needs professionals who can pitch ideas, present proposals and discuss sensitive data with all types of people.
  • Project management. As a busy financial professional, you need to effectively manage time and budgets, and meet tight deadlines, all while staying organized and paying close attention to the smallest details. With so many balls in the air, your project management skills should be in tip top shape to avoid any oversights or overdue projects can kill your credibility.
  • Problem-solving. With any job, you must be prepared and equipped to troubleshoot issues as they arise — without cracking under pressure. Taking swift and professional action will help resolve problems in a timely matter, without affecting the flow of business. That’s why finance professionals should be at the top of their game when it comes to everyday problem solving.
  • Tech savvy. We’re in the midst of a digital transformation, and financial professionals who want to keep up with the times are required to stay current with the latest software and programs. Developing good technical skills and adapting to new technology is critical for any firm that want to grow and stay competitive.

To succeed in finance, it takes more than a keen knowledge of numbers. By combining an ability to analyze data with the skills to project manage, communicate and acclimate to changing technology, your firm’s financial department will be primed for greatness.

PPP update: Application delays & foreign-owned businesses

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The Treasury Department recently released a revised PPP application on its website. With the exception of Bank of America, we’re not aware of other banks accepting applications today. It’s likely there will be a 2- or 3-day delay with other banks. We urge you to continue to prepare the necessary underlying documentation to facilitate the computations of the 2.5x monthly average payroll. This new application also removes troubling language related to companies that are more than 20% foreign-owned and/or are not permanent residents of the U.S. The recently released regulations may make the following non-immigrant categories eligible for SBA financial assistance

  • B-1 Business Visitor
  • F-1/OPT Optional Practical Training
  • H-1B Specialty Occupation
  • O-1A Extraordinary Ability and Achievement
  • E-2 Treaty Investor; or
  • L-1 Intracompany Transferee

In addition, businesses owned by Foreign Nationals or Foreign Entities may be eligible. The Lender and Development Company Loan Programs Guidelines issued April 1, 2020 states businesses listed in Appendix 1 are not eligible.

If you are an eligible business, there are additional requirements for businesses owned by non-citizens other than Legal Permanent Residents (LPRs), including foreign-owned businesses:

  • The application must contain assurance that management is expected to continue in place indefinitely and have U.S. citizenship or verified LPR status.
  • Management must have operated the business for at least 1 year prior to the application date. This requirement prevents financial assistance to “start-up” businesses owned by aliens who do not have LPR status.

Lender must require the personal guaranty from management
The Applicant must pledge collateral within the jurisdiction of the U.S. with a liquidation value equal to no less than the approved loan amount at the time of first disbursement and, to the extent that the value of collateral declines during the life of the loan, the Lender must require the Borrower to pledge additional collateral to ensure a sufficient collateral coverage amount. If the Applicant owned by foreign nationals, foreign entities or non-immigrant aliens residing in the U.S. does not have sufficient collateral, the Applicant IS NOT eligible for an SBA-guaranteed loan.

In order for a business not to be subject to these additional requirements, it must be at least 51% owned by individuals who are U.S. citizens and/or who have LPR Status from United States Citizenship and Immigration Services (USCIS) and control the management and daily operations of the business. This can only be waived by the Director of the Office of Financial Assistance (D/FA) or designee.

Development of the regulations is fluid and there may be additional modifications. It’s best to immediately contact your bank or banker for further clarification, but be prepared — they may not have all the answers as these guidelines were released late last evening April 2, 2020.

As always, if we can be of assistance please call (973) 301-2300 or contact us via email.

When disaster strikes, how thorough is your business continuity plan?

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Whether you operate a small company or helm a large corporation, every business is susceptible to events beyond its control. Whether it’s a data breach, a weather disaster or communicable disease outbreak, a solid business continuity plan can help minimize the impact on daily operations and help your organization come out on top.

Your business continuity plan is a dynamic tool that documents the procedures and processes to get back to business as quickly as possible. The time spent developing and maintaining a comprehensive plan is an investment in your company. So, from emergency communications to facilities management, make sure these five areas are covered:

#1. Emergency management. Do employees know who’s in charge in the event of an emergency? Are they aware of appropriate measures to take? Even the best employees won’t automatically know what to do without a plan in place. Appropriate emergency responses should be clearly outlined, and test runs and drills made part of your standard operating procedure.

#2. Crisis communications. When a disruption or threat arises, how do you notify your team, customers, vendors and the greater community? Your plan should specifically address notifications, communication channels and expectations regarding any change in business operations.

#3. Facilities maintenance.  Office space, storefronts, warehouses — are your facilities equipped to withstand nature’s elements? A continuity plan can help ensure that your facilities are resilient, with the ability to tolerate or recover from the potential damage.

#4. Security. Chances are your critical records and data are stored electronically, so can your IT systems hold up against tampering or hacking? Is company data regularly backed up, both on-site and remotely? Are measures in place to protect your inventory, merchandise or equipment? Keeping physical and intellectual property, data records and other valuable materials safe from harm, theft or loss is another vital function of your business continuity plan.

#5. Health and safety. At the end of the day, what’s more important than the well-being of your employees and customers? If a workplace catastrophe occurs, your people are counting on you to protect them. Your business needs systems in place that offer a line of defense against any conceivable threat.

Room for improvement
Even if your business continuity plan is complete and in effect, your work isn’t done. As technology evolves and employees come and go, the plan should be regularly updated. Experts recommend meeting with key stakeholders annually to review and modify the plan. Then, share it across departments and business units, and gather feedback from the entire company to make sure nothing’s being overlooked. When everyone is on the same page, you can best ensure an organized, safe and timely recovery.

Preparing for the storm
There’s no better test of your organization’s resilience than the occurrence of an adverse event — but don’t wait for disaster to implement or evaluate your plan. Build your defense now, and make it a regular part of your strategic planning processes.

Interpreting the new CARES Act: What it means for your business

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The much-needed support for small businesses and non-profit organizations has been realized by the passage and signing on Friday March 27, 2020 by the President of The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which introduces the Paycheck Protection Program as a key provision in Title I — the Keeping American Workers Paid and Employed Act. In an effort to get our clients and friends information quickly, there may be revisions to the below as we take a deeper look into the law.

What is it?
The Paycheck Protection Program provides $349 billion in 100% federally guaranteed loans to small businesses and 501(c)(3) nonprofit organizations. Because many businesses have already laid off workers as a response to the pandemic, the program can be retroactive, with the covered loan period running from Feb. 15 to June 30, 2020, which allows previously laid off or furloughed employees to be returned to payrolls.

Who is eligible?
Any business or non-profit organization with not more than 500 employees is eligible, or otherwise qualifies as a “small business” under SBA size standards published in 13 part 121 of the CFR. More importantly, small business includes within its definition sole proprietorships, independent contractors and self-employed individuals.

How are the number of employees determined?
Generally speaking, the normal rules of attribution apply. Meaning any business that is controlled through voting, managerial, economic or influence would be counted toward the 500-employee cut-off for this program. The only exception is for hotels and restaurants as long as the number of employees is less than 500 per physical location.

How is the loan amount determined?
The loan amount is determined by reference to monthly payroll costs for the one year period prior to the loan. Payroll costs include:
1. Salaries, wages, commissions or similar compensation, up to $100,000 per employee
2. Cash tips
3. Payment for vacation, parental, family, medical or sick leave
4. Healthcare and retirement benefits
5. State and local taxes on wages
6. Payments of any compensation to or income of a sole proprietor or independent contractor that is wage, commission, income, net earnings from self-employment or similar that is not more than $100,000 in 1 year, as prorated for the covered period

Any compensation paid to employees outside the U.S. is excluded.

Once the monthly average of the above is determined, it is multiplied by 2.5. The business receives the lesser of 2.5x the monthly average payroll or $10,000,000.

I’m self-employed or an independent contractor and have no employees. How do I compute the loan amount?
If you are self-employed, or an independent contractor the rules above apply to you, except you will use your first $100,000 of self-employed income to determine the average monthly payroll. The law specifically states “the sum of payments to of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as pro-rated for the covered period.”

Although not clear, we imagine your self-employed health insurance can also be included in the computation. In addition, self-employed and independent contractors will be required to submit documentation substantiating such classification such as payroll tax filings, 1099-MISC and other information.

What expenses can I pay?
The money received can be used to pay the following:
1. Payroll costs
2. Payments for the continuation of group health care benefits, which includes paid sick, medical and family leave and insurance premiums
3. Employee salaries, commissions or similar compensations
4. Payments of interest on any mortgage obligation. However, the payment cannot be used for prepayment of or payments for principal.
5. Rent
6. Utilities
7. Interest on any other debt obligations that were incurred before the covered period.

How do I apply and what are terms?
Application for the loan will be made with your local banker who is an authorized SBA lender. The federal government is pushing for rapid adoption and expects to have numerous additional lenders in place in the weeks to come. We still don’t have clarity as to how the application process will work or when an application can be submitted. However, the normal requirements of the SBA will not be enforced such as personal guarantees, collateral, and unable to obtain credit elsewhere. Normal fees of the SBA will also be waived.

What we do know is there is a loan forgiveness provision, provided the funds are used as follows:
1. Payroll costs
2. Interest on certain mortgage obligations
3. Rent and utilities
In addition to using the funds on the costs above, there are provisions to maintain the ratio of employees during February 15, 2020 through June 30, 2020 to the number of employees for the same period in 2019, or for the period January 1, 2020 to February 29, 2020. The amount of forgiveness is also reduced by the amount that total salary or wages of any employee is reduced by more than 25 percent. However, anyone who makes more than $100,000 is not subject to this limitation as the wages above $100,000 were not included in the computation.

The amounts forgiven are excluded from gross income for federal income tax purposes.

To the extent the funds remain or are not used for the expenses above, the funds are required to be repaid over a maximum maturity of 10 years with an interest rate not to exceed 4%.

Other considerations
We have received many calls from our clients and colleagues regarding paying employees who are paid by person seen (in the case of non-profit organizations in behavior health) or commission. The question is how is the rate of pay determined? Our recommendation is to set the rate of pay based on a historical average of commission or persons usually seen based on prior year records for the employee. Remember, the funding is to allow a business or non-profit organization to retain their employees.

We understand these are uncertain times and we are committed to keeping our clients and friends informed as information becomes available.