Five ‘must do’ items – before year-end

Scott Dieckgraefe Insight

1) Review your wills, trusts, estate plan and succession plan.

There is a chance COVID will cause a lengthy absence, disable or kill you, a family member or a potential owner / management successor of your business. Number one on my list is to review your will, estate and succession documents in detail for updates and changes. If they are more than a few years old, review them with your lawyer, your CPA, and your management team as appropriate. Make the changes as soon as possible.  

2) Review your line of credit and visit with your banker.

Even if your line of credit is lower than normal (thanks in part to a PPP loan) this is a great time to visit with your bank. It is difficult to measure the length or depth of this recession. The experts and news programs contradict each other. Take a look at your bad and worse case scenarios. Talk to your banker about them and what the bank may be able to do if you need expanded credit to get through the downturn.

3) Amp up your Cyber security. 

This is a persistent threat. Every year the attacks get more complex and harder to defend. I have seen the effect of ransomware attacks and they are disruptive and expensive. The ransom itself is not all of the cost, new hardware, software, etc. is also required if you are attacked. Law enforcement will not help. Given all the other 2020 issues, you just do not need a cyber-attack this year. In my opinion, this is not a DIY project. Within your budget, and as soon as possible, get a thorough security check / audit from a qualified cyber expert. 

4) Start planning your year-end ASAP. 

Have your accountant project the year-end financial statement numbers early with “good”, “not so good” and “awful” versions. Take any actions possible to make your balance sheet look as good as possible in all three scenarios by 12/31/2020. A strong balance sheet reduces financial risk. In the event you need credit extensions in the near future, a better balance sheet will make it easier for your banker to help.

Use these same scenarios for income tax planning for both your business and your personal tax. Depending on how this year and next year project, timing income, deductions and equipment purchases may have large tax savings.

Congress is, as I write this, negotiating a needed COVID relief package. Reliable sources expect that legislation will include a provision to make the expenses funded by forgiven PPP loans deductible. Recently the IRS has taken the position those expenses are not deductible. It will take an act of Congress to override the IRS. Clearly, the political environment could at least delay if not remove that overriding provision. Accordingly, we are recommending that your tax planning include both a ‘with’ and ‘without’ version regarding the PPP loan funded and forgiven expenses.  

5) Finally, maximize your Paycheck Protection Program loan forgiveness

Based on what we know, it is in your best interest NOT to file for forgiveness at this point. This comes directly from the SBA, as well as, a number of experts. Everyone is expecting some modification of the existing law to your benefit. However, we will need to wait on successful legislation mentioned in #4 above. Notwithstanding, you can draft (or have it drafted) the application and identify any weaknesses. Reach out to your CPA and banker for their thoughts and comments.

If your loan is more than $2 million, you will be required to file a form addressing your uncertainties at the time of the PPP loan application. We strongly recommend drafting the form and related attachments right away so that you will have plenty of opportunity to best present your position at the time of application.

This article was guest written by Mark J O’Donnell, CPA, a partner with Schmersahl Treloar & Co, a Saint Louis top 20 accounting firm. Mark has spent his career serving SMB’s in manufacturing, construction, distribution and a variety of B2B and professional services companies. His technical background includes all of the traditional disciplines within public accounting. His experience includes providing CFO level advice to his business clients as well managing a professional practice for more than 20 years. Mark graduated with a BSBA magna cum laude from the University of Missouri – Saint Louis.