Tim Kinane

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Saturday, November 21st, 2020

ALERT! IRS Affirms Non-Deductibility of PPP-Funded Expenses

By: Patrick Ungashick

Covid 19 Balance

To help our clients and other business owners and leaders respond to the unprecedented leadership disruptions caused by the coronavirus (COVID-19) outbreak, the team at NAVIX offers the following crisis management information series.

Alert! IRS Affirms Non-Deductibility of PPP-Funded Expenses

In a move that will disappoint many business owners and leaders, the IRS has affirmed its earlier position that taxpayers cannot claim an income tax deduction for business expenses that would otherwise have been deductible if the payment of that expense results in forgiveness of a Paycheck Protection Program (PPP) loan. The PPP loan program was created under the CARES Act passed earlier this year in response to the COVID-19 crisis.

The guidance came in the form of a revenue ruling (Rev. Ruling 2020-27.) (A revenue ruling is a public decree from the IRS, instructing all taxpayers how the IRS will interpret and apply tax legislation. A revenue ruling is generally treated as a law.) Additionally, the IRS has issued Revenue Procedure 2020-51, which provides taxpayers with guidance on how to implement the IRS’s position.

This newest development comes even though some Congressional leaders, as well as some tax professional organizations like the AICPA, have previously disagreed with the IRS’s interpretation of this portion of the CARES Act.

The IRS’s guidance means a taxpayer cannot claim an income tax deduction for expenses used in the PPP loan forgiveness calculation. For companies that used PPP funds to pay expenses that ordinarily would have been deductible, the IRS’s ruling effectively increases a business’s net income and resulting tax liability.

Furthermore, the IRS states that if PPP loan forgiveness has not yet happened, borrowers cannot deduct expenses paid for with PPP funds this year (in 2020) if the taxpayer reasonably believes the loan will be forgiven next year.

Ultimately this affirmation by the IRS appears to likely stand, as there seems to be little serious effort out of Congress to legislate a different IRS interpretation of the CARES Act, especially with the US Presidential election over and COVID-19 continuing to spread.

Business owners and leaders must confer with their tax advisors to review the impact of this IRS action.

The NAVIX team has helped hundreds of business owners prepare for exit. We have also helped countless owners and leaders deal with recessions, liquidity crises, and economic upheaval. Our experience and perspective enable us to guide our clients through difficult times, such as these.

Contact Tim 772-221-4499, to discuss strategies for your business.

Thursday, October 15th, 2020

Company Sales Rebounding Despite COVID-19

By: Patrick Ungashick

Navix check

The COVID-19 pandemic brought many aspects of US society and business activity to a halt in March of this year, including sales of small to mid-market companies. Yet already there are signs that mergers and acquisitions activity (M&A) is rebounding for small to mid-market companies, an encouraging development for business owners who seek to exit from their companies by way of sale to an outside buyer. The emerging increases in company sales come after deal value in the US fell by 20 percent in the first half of 2020 to according to PitchBook Data. Deal value declined by one-third in the second quarter alone.

Buyers and sellers are coming back into the market, after pumping the breaks when the pandemic first hit. First, many companies have been largely unaffected by the pandemic. Other companies have adjusted their operations and are returning to profitable growth despite the ongoing public health challenges. Additionally, the upcoming US elections have spurred many business owners to resume exit planning out of fear of tax increases in the future.

Overall, the volume of sales of small to mid-market companies remains below pre-pandemic levels. However, signs point to the need for business owners to be ready to sell as the “window” reopens. In response, we recently published a new whitepaper, “Top 10 Signs You are Not Ready to Sell Your Company,” to assist business owners during these uncertain and changing times. Download a free copy to review if you and your company are ready to sell, or what it takes to get you prepared.

 

Contact Tim 772-221-4499, to discuss strategies for your business.

Wednesday, October 14th, 2020

Yes! Alternatives to Selling to a Competitor or Private Equity

Navix 2020 10 14

Perhaps the two biggest myths about selling your company are:

  1. Your buyer must be a competitor or a private equity firm, and
  2. When you sell, you must give up control.

Thankfully, neither myth is true.

This educational webinar presents an alternative strategy to achieve the goals that most business owners seek: maximizing personal wealth, maintaining control until you wish to exit, and setting up the company for long-term success.

Register and attend this webinar to learn:

  • When it may be right to sell your company to a competitor or private equity group, and when it may be the wrong decision
  • How to get cash out of your company without giving up control
  • How to position the company for long-term growth and success

Register Now

Contact Tim 772-221-4499, to discuss strategies for your business.

Friday, September 4th, 2020

Top 10 Signs You Are Not Ready to Sell Your Company

Navix e book

Between COVID-19, a recession, and the aging of the US Baby Boomers, the number of business owners seeking to sell their company at exit will only increase in the future.

While every company is unique, there are ten universal signs that indicate if your company is ready (or not) to sell and maximize value. Our newest White Paper, Top 10 Signs You Are Not Ready to Sell Your Company, presents these ten signs, and just as importantly provides guidance and resources on how to prepare for a successful sale.

Click here to download this complimentary resource from NAVIX.

Contact Tim 772-221-4499, to discuss strategies for your business.

Navix people meeting

Friday, August 14th, 2020

Maximizing Company Value: Tracking EBITDA During COVID

By: Patrick Ungashick

Work from home

If your exit strategy is to sell your company one day for the maximum value (perhaps as soon as possible once the COVID-19 recession is over?), then it is essential to track your company’s EBITDA accurately. (Read our previous article about EBITDA and how it directly impacts your company’s valuation at the sale.) However, the COVID-19 pandemic and economic recession have significantly altered many companies’ financial results and condition. The virus is causing many companies to experience “abnormal” changes to revenue, costs, margins, labor, debt, and other financial and operational factors. Many companies are experiencing negative changes such as lost revenue and profits due to the virus’ impact, while others are experiencing positive demand for their products and services. Either way, the virus is altering many company’s financial results, which means adjusting the EBITDA. Some of the changes are temporary (non-recurring) and expected to revert to pre-COVID-19 conditions at some point in the future. Other changes may be more permanent.

When you decide to sell your company, it will be crucial to have accurately tracked your EBITDA and its changes through these unusual and unprecedented times. Potential buyers will want to know how COVID-19 impacted your company’s financial performance. They will also want to be able to clearly and readily convert your company’s financial results to show how the company likely would have performed during normal operations and market conditions. Because buyers typically ask for five years of historical financial reports, it is essential to track EBITDA now whether you aspire to sell your company quickly or anytime within the next five or so years.

There are many ways COVID and the recession may be creating unusual changes within your company’s financial results. Below are some of the more common issues that you and your management team may need to address:

 

1.Temporary Increases / Decreases to Revenue or Profits
Due to COVID-19, some companies may see a surge in demand for their products leading to an increase in revenue and profits. Examples might include companies dealing with products or services in the following areas: medical and health, cleaning and sanitary, home entertainment, transportation, and delivery services, and other industries. Conversely, other companies may be experiencing a reduction in the demand for their products or services, leading to lost revenue and profits. Examples include markets such as hospitality and leisure, travel, luxury goods or services, and others. In these situations, you and your team should monitor demand, revenue, and profits to identify how much, of the lost or increased volume, relates to the current conditions and is not expected to continue after the virus and recession have passed.

 

2.Business Facility Disruption
Many companies were forced to close facilities such as offices, manufacturing plans, distribution centers, etc. due to COVID-19. These disruptions likely result in lost EBITDA. Owners and their management teams should, track any business disruptions and document the duration and root causes, to facilitate analysis of the company’s financial results for the periods before and after the relevant shutdown. Additionally, track operating expenses that were reduced or not incurred when determining the normalized EBITDA.

 

3.Expenses to Support Remote Work
Many businesses incur increased expenses associated with the shift of workforces from company facilities to work-from-home (WFH) routines. Examples of these costs include improved information technology (IT) expenses and equipping employees with additional computers and other equipment and supplies to support remote work. Owners and their teams should identify and track these expenses and purchases to support remote working. Also, track any positions likely to remain WFH going forward.

 

4.Reduced Employee Compensation and/or Headcount
Many companies severely impacted by COVID-19, and the current recession have reduced employee compensation, and/or reduced employee headcount through lay-offs or furloughs. Owners and their teams should track employee compensation and headcount pre-COVID-19 and post-COVID-19. Also, consider any costs associated with severance payments and other employee termination costs. Use this information to normalize the company’s EBITDA for the period.

 

5.Increased Bad Debt Expense
Many companies are experiencing an increase in aged accounts receivable (A/R) as customers delay payment due to the virus and recession. Also, other companies may be experiencing increases in bad debt expense resulting from customer bankruptcies. Business owners and their management teams should closely monitor A/R aging and collections to stay in front of any potential issues with customer payments. 
Careful consideration should be given to modeling future customer revenue for specific lost customers and plans to recapture lost revenue by channel/geography.

 

6.Stretching Payments to Vendors
In an effort to conserve cash, many companies are stretching payments to vendors, landlords, leaseholders, etc. This practice leads to increases in aged accounts payable (A/P) and higher A/P balances. In some situations, stretching payments can result in lost early pay discounts if previously available and utilized. Carefully monitor the business’s payables, consider normalizing higher than usual A/P balances and significantly aged payables, and impact to EBITDA.

 

7.Government Loan and Bailout Programs
Since the COVID-19 crisis first hit, many companies have taken advantage of various government loan and bailout programs which are not normally utilized in the regular course business. The most widely used program among small to mid-market companies has been the Paycheck Protection Program or PPP. These programs invariably have stipulations such as retaining certain levels of employees and their compensation, and other expense management requirements. Business owners and management teams must consider and normalize the impact of any loan or bailout programs on the company’s earnings and consider normalizing the impact.

 

The seven items listed above represent only some of the more common issues that companies may be experiencing due to COVID-19, which alter EBITDA. There are many additional issues to monitor and track, such as changes to the company’s: pricing of its products and services, discretionary expenses, cash management practices, business development operations and results, employee attendance, and absenteeism. Ultimately, owners and management teams need to study and accurately track the company’s EBITDA and other financial results during these unusual times. Staying on top of these issues is essential not only for the effective leadership of the company but also for correctly positioning the company for sale when that day comes.

Contact Tim 772-221-4499, to discuss your specific EBITDA questions or your overall exit plans. If you intend to sell your company as your exit strategy, consider registering for our webinar “Eager to Sell Your Company when the Market Returns?” . During this webinar, we will discuss the steps that business owners need to take now, to position the company for sale and maximize value when market conditions return to favorable.

Wednesday, August 12th, 2020

Eager to Sell Your Company When the Market Returns?

About this Webinar

Eager to Sell Your Company When the Market Returns?

August 25, 2020, 2:00 pm Eastern

Register

Abstract:

The COVID-19 virus presents an ongoing public health threat. It has sent the US economy into recession and created an unprecedented challenge for many businesses. It is also causing many business owners to re-assess their exit plans and move them up in many cases. This webinar will address the many questions business owners are now asking about how to navigate these times and be ready to sell the company once favorable conditions return. In this presentation, we will specifically address:

  • How has COVID-19 impacted M&A markets?
  • What if you want to accelerate your exit timetable?
  • What must you fix in your company to be ready to sell (and what can you get away with not fixing)?
  • How do you know if your company is ready to be sold?
  • How do you know if you are ready to sell?
  • Biggest mistakes to avoid in your exit plans

If you are a business owner planning on selling your company, join NAVIX founding partners Patrick Ungashick, Chris Rowen, and Trey Prophater for this critical update and discussion.

Webinar Presenters:

Presenters 2020 8 25

Contact Tim 772-221-4499, to discuss strategies for your business.

Thursday, June 25th, 2020

How Leaders Inspire Even in a Time of Crisis

I’m sharing a recent Inc. Real Talk Business Reboot Webinar with Simon Sinek.

Learn how to embrace an infinite mindset and strategies to lead your team through these difficult times and into the new Abnormal.

Inc SS

 

Inc. Real Talk Business Reboot:
Leading  Through Times of Crisis and Change

Sinek teaches leaders unconventional ways of thinking, acting, and communicating to help inspire those around them. He believes great leaders are the ones who think long term rather than short term. In today’s ever-changing world, knowing the framework for leadership is more crucial than ever.

What tools and strategies are you using to lead your team through these challenging times?

Tim Kinane

Call 772-210-4499 to set up a time to talk about tools and strategies that will lead to better results.

Please share this with a friend/colleague

 

 

Tuesday, June 9th, 2020

SBA PPP How to Maximize and Beyond

I was a guest speaker on the inaugural Small Talk online series for the Business Development Board on Martin county.  The interview is from late April and the key points remain valid as businesses transition back to a healthier economy.

The topic was How to Maximize Your Loan Funds.  Along with reviewing how to best use SBA PPP funds, we discussed what to consider moving forward.

 

 

Key take away points:

SBA PPP Funds:

Keep communication open with banker and CPA.

  • Be proactive
  • Review options
  • Ask questions
  • Document expenditures
  • Consider immediate and longer-term cash needs
  • Multiple cash flows

 

Keep communication open with vendors:

  • Terms
  • Vendors are partners- you want them to be there to get you back on track

 

Businesses are resilient.

Generally, businesses need to find a way to react quickly to an issue or problem.

  • How much money is needed
  • What is the best way to spend money now
  • How to make the next immediate decision

That is great during the time of crisis, but it is important to think future down the line.

Employees

They are the one who helped to build your business to where it is now, they will be vital  to re-build your business.

Keep in contact- keep communication open.

 

Opportunities in times like these

Resilience of people in general, Americans and Small Business

Small Business is the engine that runs this country- Small Business is what will bring the economy back.

  • Step back from the problem
  • Explore all new opportunities as you move forward
  • Challenge employees and help them find opportunities

Contact Tim 772-221-4499, to discuss strategies for your business.

Monday, June 8th, 2020

PPP Loan Forgiveness Just Got Easier

By: Patrick Ungashick

Sick Dollar

 

To help our clients and other business owners and leaders respond to the unprecedented leadership disruptions caused by the coronavirus (COVID-19) outbreak, the team at NAVIX offers the following crisis management information series.

Responding to Coronavirus: PPP Loan Forgiveness Just Got Easier

On June 5th, the new Payroll Protection Plan Flexibility Act (PPPFA) was signed into law, with the purpose of making it easier for companies with PPP loans to secure loan forgiveness. The new law was passed in response to widespread confusion and criticism surrounding the rules pertaining to loan forgiveness. The new PPPFA law is intended to provide greater flexibility to the loan forgiveness process, in order to help the millions of businesses and their owners survive the economic challenges created by the virus.

The important PPP loan forgiveness changes are:

1. More Time to Spend the PPP Loan Proceeds

The most significant change is that companies now have more time to spend the loan proceeds. Before the new PPPFA law, borrowers had only eight weeks (called the “covered period”) starting upon receipt of the loan to spend the funds. That pressured many companies to spend PPP funds more quickly than would best help them through the coronavirus crisis. Now, borrowers have until the earlier of either: (1) 24 weeks from the loan origination date, or (2) December 31, 2020, to spend PPP funds.

However, under the 24-week covered period, companies will have to maintain the number of FTE employees for about three times longer (24 weeks instead of eight weeks) to maximize loan forgiveness. To help employers address this, borrowers who received PPP funds before June 5th (when PPPFA was signed into law) can opt to remain with an eight-week covered period, if advantageous.

2. More Flexibility for How PPP Proceeds are Spent

The next important change is that the new PPPFA law reduces the amount that companies must spend on payroll costs to qualify for loan forgiveness. Previously, PPP borrowers had to spend at least 75% of the loan proceeds on eligible payroll costs. Under the new law, companies must spend at least 60%. This means that forgivable non-payroll expenses can now be up to 40% of spending, increasing from 25%. 

PPPFA also clarifies if borrowers are required to spend a minimum amount of loan proceeds. The new law clearly states that in order to be eligible for any forgiveness, a borrower must spend at least 60% of its total PPP loan proceeds towards payroll costs as defined under the CARES Act. Meaning, a borrower is not eligible for any loan forgiveness if it spends less than 60% of its total PPP loan amount.

3. More Time to Pay Back the PPP Loan

Another critical change is that borrowers now have five years, an increase from two years, to repay the PPP loan. The loan interest rate remains unchanged at 1.0%. 

4. Extended Safe Harbor to Preserve PPP Loan Forgiveness

The new PPPFA law expands the opportunities for employers who experience a reduction in employee headcount or wages/salaries to maximize loan forgiveness through several means:

  • Initially, PPP provided a “safe harbor” which permitted employers to avoid a reduction in loan forgiveness due to a significant decrease in employment and/or wage levels between February 15 and April 26, 2020, as long as the numbers of employees and employee wage levels are restored by June 30, 2020. The PPPFA extends this safe harbor restoration deadline from June 30 to December 31, 2020, giving employers six additional months to preserve loan forgiveness. 
  • PPPFA clarifies that loan forgiveness will not be reduced based on an inability to rehire employees if the borrower can document (1) written offers to rehire individuals who were employees of the organization on February 15, 2020; or (2) an inability to hire qualified employees for unfilled positions by December 31, 2020.
  • Loan forgiveness will not be reduced for borrowers who are able to document a failure to return to the level of business activity as existed prior to February 15, 2020, due to compliance with coronavirus-related guidance for sanitation, social distancing, or safety requirements from the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) between March 1 and December 31, 2020.

5. Potential Longer Deferment of Loan Repayment

Additionally, PPPFA extends the loan deferment period for many borrowers. Under the previous rules, borrowers could defer loan interest and principal payments for six months (although interest does accrue during the deferment). Now, borrowers can defer payments until the SBA determines the loan amount forgiven for that borrower. Given the new 24-week covered period, and given that lenders have 60 days to act and the SBA has 90 days to determine loan forgiveness, this could significantly increase the deferment period for many companies. However, PPP borrowers cannot just stall filing their loan forgiveness application in order to extend the deferral period. If a PPP borrower fails to apply for forgiveness within ten months after the PPP loan forgiveness covered period (which is now the earlier of 24 weeks from origination or December 31, 2020), the deferment period ends, and the borrower must begin making loan repayments.

6. Payroll Tax Deferral Expanded

Previously, companies that secured PPP loan forgiveness could not defer their employer share of payroll taxes. The new PPPFA law now allows all borrowers that receive loan forgiveness to defer payment of employer payroll taxes under Section 2302 of the CARES Act. (The payroll taxes typically due between now and through December 31, 2020, may be deferred with 50% payable by December 31, 2021, and the other 50% payable by December 31, 2022. Similarly, a self-employed taxpayer can defer paying 50% of his or her self-employment tax that would be due from now through the end of 2020 until the end of 2021 [25%] and 2022 [25%].)

However, keep in mind that this payroll tax deferral is different from the CARES Act employee retention tax credit. The PPP and the employee retention credit are still mutually exclusive, and companies may not apply for one if they use the other.

PPP Loan Forgiveness Application

To secure loan forgiveness, borrowers must complete and submit to their PPP lender the Small Business Administration (SBA) loan forgiveness application. Borrowers should carefully review the 11-page application, and consider the various definitions and options under the loan forgiveness process. Business owners are encouraged to consult their tax and banking advisors. 

The NAVIX team has helped hundreds of business owners prepare for exit. We have also helped countless owners and leaders deal with recessions, liquidity crises, and economic upheaval. Our experience and perspective enable us to guide our clients through difficult times, such as these.

Contact Tim 772-221-4499, to discuss strategies for your business.

Thursday, May 28th, 2020

Communicating in Times of Crisis  Part 2- D Style

As we continue living in highly stressful times; I hope this message finds you well.

Now that so many of us are working remotely, we are finding communication much more challenging. Even with video conferencing tools, it is still difficult to observe and process all of the nonverbal cues that we used to depend on for communication with coworkers, customers, and vendors.

This is part 2 of Communicating in Times of Crisis- focusing on the D Style in the Team Strength DISC Tool.

DISC EIQ APRIL 2020 d

 

A decisive and ambitious person can become more aggressive and confrontational when things are out of control.

EIQ individual profiles hi low D

 

D Style

  • decisive

  • ambitious

  • results driven

  • likes being in charge

When we identify and control what is likely to stress us we can better react with thoughtfulness.  (That is a good time to take a nice, deep breath.)

It is OK to understand and accept that we are under stress and not in a comfortable place.  That will start to refill our emotional bank account when we need it most.

D Style

Emotional/Reactive: “If you can’t stand the heat, get out of the kitchen.”

Thoughtful: “I understand this is stressful. Let’s focus on what we CAN control.”

When we can get our own emotions controlled by understanding and managing the things that we can affect, then we will be in a better position to help others. By communicating more effectively and reducing our reactive behavior, we will be in a better position to be more accommodating to those around us, on phone calls or in a video chat.

We can then remember to treat others the way they want to be treated. Don’t try to “fix” people. We can remember that they have different needs and fears and we can adapt ourselves to their pace or priority as best we can. It’s a time that we all need to listen more and pay attention to what other behavioral expressions we are broadcasting and being more accepting of the reactions of others.

So, in these troubling times, we do have the ability to make deposits to our own emotional bank account.  Even better, when we pay attention and care for others, we can also make emotional deposits to the accounts of those people who are important to us.

Stay safe, stay well.

Tim

Read the full article Communicating in Times of Crisis .

 

Send your questions about how to use your profile to identify and control what is likely to stress you sot that you can better react. Email

Call 772-210-4499 to set up a time to talk about tools and strategies that will lead to better results.