CPAs advising small business clients have a lot to discuss in light of COVID-19. Businesses that have reduced headcount, cut costs and implemented other strategic changes will want to evaluate their business model ahead of full business reopenings.

To help small business owners assess their options moving forward, here is a checklist that CPAs can use to discuss with them:

• Prepare a revised budget.
• Form an idea of when they can bring back their employees and service offerings and when additional investments in the business are warranted.
• Reach out to customers and vendors to assess any issues that may have cropped up over the last two months.
• Make sure you have a cash cushion or access to liquidity over the next few months. We are operating in a changed business landscape, and we should be cautious in how we deploy capital and resources moving forward.

Challenges Abound

Few small businesses in the U.S. have been unscathed by the pandemic. In our inaugural survey of 250 small businesses in the U.S. conducted in September in conjunction with Sapio Research, more than 80 percent lost revenue because of the pandemic at about 30 percent on average. To make up for this loss, they cut spending: 37 percent either furloughed or laid off staff. Sadly, 9 percent closed up shop for good and 5 percent plan to do so in the coming months.

In addition, more than 60 percent of those surveyed applied for a Paycheck Protection Program (PPP) loan of which 26 percent received one (including 41 percent of those in companies with 100 to 499 employees and just 17 percent of companies with less than 25 employees). These numbers imply that the Federal government could have done a much better job at communicating the rules, which changed and relaxed over time. Some small businesses didn’t apply because they weren’t sure if they’d even be allowed to reopen or whether they could meet the Federal government’s criteria. Others didn’t get funding because of capacity issues on the side of the lender. Some lenders were so overwhelmed they couldn't even answer small business questions related to lending and the application, while others felt that they were not being compensated appropriately and that they spent more on administering the loans than they made.

More than 60 percent of survey respondents recently attempted to renew a line of credit, of which half said they received stricter application criteria and/or an increase in interest rates or fees. In some cases, banks are denying them credit because they took out a PPP loan. In one anecdote, a bank told a client that if they were so concerned about the future of their business that they applied for a PPP loan, how could the bank feel confident to lend to them further?

While not advisable, more than 20 percent of those surveyed tapped into their personal savings; 8 percent borrowed from their retirement accounts; and 7 percent took out a personal loan. This is startling for a number of reasons. Tapping one’s retirement account is likely a measure of last resort for small business owners and demonstrates just how dire the situation is for many that they’d risk their own retirement for a business that could potentially fail.