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Do You Want a Free Credit Report?

Anytime you hear the word “Free” there is usually a catch and the free item isn’t really free. Surprisingly, you can receive a free credit report by doing this:

Type annualcreditreport.com into your browser, click on “Request your free credit reports,” and start the process. It will take you less than 10 minutes and it is completely free. Federal law requires each of the three consumer credit reporting companies, Equifax, Experian, and TransUnion, to give you a free credit report every 12 months if you request it. Technically, you can receive 3 each year if you obtain one from a different credit reporting company every 4 months.

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Don’t Do This

There is one financial transaction that I strongly discourage clients from doing and here’s why . . .

Do not withdraw from your retirement accounts early! Here are the reasons why I hear most people want to withdraw from their retirement accounts:

  1. Purchase a house
  2. Pay for expenses while unemployed
  3. As a temporary loan, with the intentions of replacing the money
  4. To pay for unforeseen expenses
  5. You need the money for (fill in the blanks)

The main reason to not do this is because it is one of the major reasons for tax problems. Aside from early withdrawal penalties, additional income taxes are accessed  on the balance, withholdings are not usually taken or not enough, and you may end up increasing your income, which sometimes pushes you into an even higher tax bracket. Once you add up all of the penalties and taxes, then the amount withdrawn can disappear by half for some.

What are some other options as you are most likely withdrawing your retirement funds because you desperately need the money and do not have a cash cushion? If you are employed, you may be able to obtain a retirement plan loan from your employer, which is not a taxable event. Alternatively, you might be able to borrow the money from your home’s equity. In some cases, you may be able to delay what you need the money for if not needed for emergency purposes.

Over the long-term, this is why I stress slowly building up a cash emergency fund. Yes, it’s boring and unexciting, but you will be glad you did when the time comes.

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5 Risks to be Aware of that Will Hurt Your Finances

There are ups and downs in life, good times and bad, and everything in between. Unfortunately, some events can hurt your finances in a significant way and may even be beyond your control. What are some of these risks to be aware of and what can you control?

Health Issues

As we become older, there are more chances of having a serious health issue. What is not commonly thought of is that family members, such as spouses, elderly parents, and children can develop health issues, both physical and mental. We have a responsibility to take care of our family, and the time spent will take time away from our job or business, which will eventually lower our earnings. While you cannot control the health of others, you can take charge of your own health and that of your children by living a healthy lifestyle.

Addictions

Do not think that you are immune to addictions. Aside from alcohol, illegal drugs, and gambling addictions, there are other destructive addictions that will ruin your finances such as prescription drugs, video games, and pornography/sex. The statistics on who has these addictions, how they start, age groups, and the impact on your brain are alarming. Be aware of these addictions and do your best to stop them before they start.

Divorce

Aside from paying legal fees, there are statistics that show that divorced women experience a prolonged loss of earnings and lower standard of living after divorce, even though various studies show that approximately 70% of women initiate divorce. Surprisingly, statistics show that a man’s earnings increase significantly after divorce. Focus on a healthy marriage and your finances will be stronger, plus some studies show that divorce does not lead to a better life.

High Income then Low Income

Inconsistent income patterns can hurt your finances in multiple ways. The first is that if your income is very high in one year, then your spending will probably increase, and once your income drops, your spending will probably not drop as quickly, if at all. Second, if you have a very good year in your business and don’t set aside a reserve for taxes, then you won’t have the money to pay your tax bill, especially if your income is lower in the following year. I have seen this situation happen repeatedly.

Expense Creep

Expenses have a way of increasing faster than your income and are hard to lower once they do. A good rule is to increase your savings in the same proportion as your income, and do not incur additional debt. This way, it does not really matter what you spend, and yes, I really did say that, because mathematically it does not matter. It’s putting first things first.

 

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Before You Open Up A New Location

It’s not a crazy idea, but now may be the time to open another location. Before you do, here are a few things you should consider:

Do you still have capacity at your existing location?

It’s much, much easier and less expensive to utilize your existing location to increase your sales and profits then to look for a new location. If you still have plenty of capacity in your current location then the time is not right. If you the opposite is true or you are trending to be at full capacity soon, then the time may be right to look for a new location

Relocate or additional location?

A relocation is essentially just a move, however, if you are keeping your existing location then the task becomes more complex. An additional location is almost like running two separate businesses at the same time.

If an additional location then consider management and staffing

Who will manage your new location? If you answered that you will, then expect to burn yourself out in a short period of time. Strongly consider either hiring a manager for the new location or for your existing location, while you manage the new location.

What is your cash flow like?

If your cash flow is already tight, then figure out what the reason is before you magnify the problem. A larger location or additional location will only add to cash flow problems if you haven’t addressed this issue already.

 

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More PPP Updates!

More PPP Updates:

New Forgiveness Application:

A new application to apply for loan forgiveness became available on June 16th. There is also an EZ Loan Forgiveness Application.

Payroll Costs % Decrease

Only 60% of loan proceeds must be used for payroll costs versus 75% with previously issued rules.

Maturity Date

Loans issues prior to June 5th have a maturity of 2 years, and loans issued after June 5th have a maturity of 5 years. I guess it doesn’t pay to be early sometimes!

Payroll Period

For loans received before June 5th, you can calculate eligible payroll costs using a 24 week period or elect an 8 week period. If you received loan proceeds after June 5th then use the 24 week period.

 

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A Few PPP Loan Forgiveness Tactics

You want to make sure that as much of your PPP loan is forgiven as possible. Here are a few ways you may not have thought of:

Non-Payroll Costs:

You can include interest payments on loans, the cost of telephone services, including your cell phone, faxes, VOIP services, and Internet services, fuel for your vehicles, and lease payments for any personal property, such as for vehicles and equipment as long as they were in force before 2/15/2020.

Payroll Costs

Payroll costs include wages, but also include group health care benefits, retirement plan contributions, and state and local payroll taxes.

Deadline

The application expires on October 31, 2020. Once the 8 week period is over do not hesitate to work on the application.

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PPP Loan Forgiveness Application

There is a forgiveness application that was made available from the Paycheck Protection Program and here are the highlights and definitions:

Average Full-Time Equivalent “FTE” Calculation:

To calculate FTE, you can use a simplified version to determine this by assigning a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.

Covered Period for Payroll Costs

The covered period is the eight-week (56 day) covered period of your PPP loan. The first day is the same date that you received the loan proceeds. For example, if loan proceeds were received on Monday, April 20, then the covered period is April 20th thru Sunday, June 14th.

Alternatively, eligible payroll costs can be calculated by using the eight-week (56 day) period that begins on the first day of the first pay period following the PPP loan disbursement date. For example, if you received your loan proceeds on Monday, April 20th and the first day of the first pay period following the PPP loan disbursement is Sunday, April 26th, then the first day is April 26th and the last day is Saturday, June 20th. This represents a 6 day difference from the first example.

Potential Forgiveness Amount

The potential forgiveness amount is the smaller of the PPP loan amount, 75% of your payroll costs, or the modified total calculation (which is the total of payroll costs, business mortgage interest, rent, and utility payments and then factors in wage reductions and FTE reductions).

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What Will Your Business Look Like and What Changes Can You Make?

Eventually things will open up fully and business activity will be flowing better than it is right now. What will your business look like and what are some changes you can make?

Technology

The use of virtual meeting technology has skyrocketed with apps like Zoom and Google Meet. This pandemic has forced businesses to be nimbler and integrate technology as an essential aspect of business operations. Other technologies that can and should be used include remote servers, cloud-based software, virtual phone systems, and electronic payment processing.

Time Management

Doesn’t the week seem like one big blur? Even though you can have a Zoom meeting with a client at 10:30 PM, doesn’t mean that you should. It is good to keep some structure in place as best as possible. This includes start times, stop times, meeting times, checking and responding to emails, and telephone calls.

Method of Delivery

If you sold products through retail, including restaurants, then now is the time to ramp up your online sales and distribution capabilities. It doesn’t mean that you need to abandon your store front, but online sales and distribution cannot be ignored. The same goes for providing services virtually to your clients. Delivering services online, such as therapy or professional services, has been widely accepted. Rethink if you need to open that second office or if you can be more virtual.

Financial Cushion

Having a financial cushion for your business and also personally is absolutely essential. The weaker businesses will struggle to be up and running quickly, while the stronger businesses can do so easier and may even be able to take advantages of expansion. How much should you set aside? A cushion of 3 months of expenses is a good minimum. It will take a while to do so, so start saving little by little until you get there.

Keep Healthy

There is a great temptation to eat more and exercise less, but this will catch up with you and rob you of your energy and clarity to make good decisions. Don’t ignore your health because it will have a direct impact on your business and ultimately on your finances.

There is so much that is unknown at this time, and it would be great to have all of the answers.

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PPP Loan Forgiveness

It sounds like it would be straightforward to have your PPP loan forgiven, but that’s like saying the tax code is straightforward. Here are details and confusion on loan forgiveness:

8 Week Period

Qualified expenses have to be paid or incurred during the 8 week period after receiving the loan. Is it incurred or paid? The statute is not clear.

75%/25%

At least 75% of loan proceeds need to be spent on payroll costs. The other 25% can be used for interest costs, rent, and utilities. It looks like rent of vehicles, etc. is considered rent also. What about bonuses, and do they count? Unclear also.

Full-Time Equivalent  (FTE) Calculation

The definition of FTE is not in the statute. It is still not clear if the hours of part-timers should be combined to determined full-time equivalents.

Documentation Needed for Forgiveness

You will need to provide documentation verifying FTE’s, payroll tax filings, financial statements verifying payment of debt obligations, and any other documentation the Administrator determines necessary. What exactly does the last requirement mean? I would think that it means that you better have good bookkeeping.

Are you more confused? I am sure that more guidance will be issued, but hopefully very soon.

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What Should We Do?

With business closings, unemployment, restrictions, and people directly or indirectly impacted by the virus, what should we do? Here are some things we can do:

Don’t Make Drastic Changes

When possible, do not make significant, time-consuming, and cash-consuming changes. These are not normal times and no one knows how long this situation will last.

Adapt and Change

Many businesses have been adapting and changing their business models to accommodate COVID-19 restrictions. Can you do the same? Think of how you can modify your product or services to deliver them in a safe and different way. This is not always easy to do, but there are always possibilities.

Don’t Be Too Positive or Negative

Let’s not be foolishly optimistic about the situation because with each passing week or month that you expect things to change, your disappointment will keep on growing. However, do not be so negative to think that the world will never open back up.

Only Think About What You Can Control

If this pandemic has taught us one thing, it is that a lot in life is out of our control. What you can control are your reactions to others, actions you take, choice of words, reactions to your emotions, and the amount of news that you view. A formula that is probably true is More News = More Anxiety.

There is so much that is unknown at this time, and it would be great to have all of the answers.

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