The CARES Act authorized the U.S. Treasury to accosmmodate loans to small businesses through the Paycheck Protection Program loan. If you received a PPP loan, you may have kept workers on the payroll, even if you didn't need them.
Many businesses did just that because owners were attracted to the nontaxable "forgivable" nature of the loans, so long as you, among other criteria, restored or maintained your workforce over the eight weeks after receiving the loan.
Eight weeks is up for a lot of us in mid-June, and it's unlikely that all of us will have seen enough customer demand return to justify keeping all those jobs the PPP helped to save.
You did your best for your employees, but it may be time for you to do your best for your business by letting some of your employees go. You know it; your people know it. You owe it to your employees to be upfront and transparent with them.
Don't be like Mohawk Fine Papers of Cohoes, N.Y., and its soap operalike saga over the possible closure of Crane Stationery in North Adams.
First, it's closing. Then, it's not. Then, employees are being laid off. Then, its $2 million PPP loan will save jobs. Then, workers are told not to come in. Then, Crane Stationery will try to continue as a smaller enterprise.
It's been a roller coaster of bad communication, with information being contradictory and consistently unclear and, likely, frustrating employees.
It's OK to be unsure, but it's not OK to be unclear.
Business owners are grappling with what the new business as usual will look like, realizing that, in some instances, getting back to business will be less like a restart and more like a startup. You need to be candid about the possibility of layoffs during this period of uncertainty, but you also don't want to demoralize your team. You should consider your employees' perspective — their fears are triggered by uncertainty about the company, their job and their future.
You cannot completely alleviate their concerns, because we business owners don't have anything near perfect information. You can tell them, "Here's what we know, and what we don't know, and this is what we are doing to close that gap. I promise to let you know what we know, when we find out. None of us want to be in this situation, but now we've got to work together to get out of it. It's not any of our faults that this is happening, but we have the right team to get through this crisis."
Talk about your personal experiences after 9/11 and during the financial crisis, and how you navigated through those times. However, don't expect that you will have covered all of what your team might be anxious about. Allow them to anonymously submit questions and concerns, then address them publicly.
You also don't want to offer false hope. You won't be protecting your people if you insulate them from bad information.
For instance, if you're thinking of cutting wages instead of laying off workers (which is a horrible idea, but a lot of employers seem to prefer it as a "kinder" cost-control tool), don't ignore addressing this action just because you're not sure yet of the specifics. You'll lose trust and build resentment when the rest of the information comes out.
Your team will put in more effort if they trust you, and you can build that trust with frequent, transparent communication, including one-on-one conversations with your key personnel. Your message shouldn't be just "We're going to get through this," but "These are the exact things we're doing to get through this."
Maybe your business didn't take a hit
Many companies automatically put a freeze on hiring in a recession. That's stupid.
In 2010, after the Great Recession, I hosted the Berkshire Job Summit, with the keynote speaker being CNBC contributor Ron Insana. With unemployment approaching doubled digits, people were skeptical of my message to hire smart people now, for cheap, while you have the chance.
Up until recently, the biggest problem for many businesses had been not being able to find enough qualified workers. And you're welcome.
What do I think now?
For a limited time, you have an opportunity to hire great talent. You might wonder how, during this time, you could afford to hire A-level talent from disrupted sectors like hotels, recreation or even failed start-ups?
I ask, how can you afford not to?
According to the Federal Emergency Management Agency, "roughly 40-60 percent of small businesses never reopen their doors following a disaster, but you can."
But, you can. FEMA believes in you. The long-term winners after the COVID-19 crisis will not be the ones who make the most cost cuts, but those who can make the best investments.
No 'forgiveness' to the PPP
You aren't getting free money. On April 30, the IRS gave guidance stating that the expenses attributed to the forgiveness of PPP won't be tax-deductible for most corporate structures. Because the loan, if used the right way, won't be taxed, the company receiving the loan will lose out on an offsetting amount of deductible expenses.
More geekily said, under Notice 2020-32, the IRS states that no deduction is allowed for an expense that results in forgiveness under section 1106(b) of the CARES Act. Senators and congressmen pushed back, disagreeing with the IRS, saying that this was not the original intent. Unless something changes, as of now, you won't have to pay back that PPP loan, but you're still going to pay.
Allen Harris, the author of "Build It, Sell It, Profit - Taking Care of Business Today to Get Top Dollar When You Retire," is a certified business valuation specialist, certified value growth adviser and certified exit planning adviser for business owners. He is the owner Berkshire Money Management (BMM) in Dalton, managing investments of more than $500 million. Allen's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Allen at Aharris@BerkshireMM.com.