Michael Bosma: COVID-19 pandemic will not derail our economy (Voices)
Covering Your Assets
RENO, Nev. — I have tongue and cheek referred to our current season as “the zombie apocalypse.” In fairness, I do not believe that our current state of affairs is going to amount to much.
Don’t get me wrong, my track record the past three elections finds me with a batting average of .000, or “0 for 3.” But still, I struggle to see how things will derail our current state of overall “winning.”
Let me explain….
- 1. All political correctness aside, if you refer to the current bug as “coronavirus” or “COVID-19” or “China Virus” or “tax virus,” the current pandemic is about a virus that the world will find a vaccine for, and with our current “social distancing,” will spread slower with less effect than any modern bug.
- 2. The U.S. in particular has marshaled resources to find a solution. The current government-private collaboration is reminiscent of what I’ve read about how things happened during World War II — or more recently, what I saw around 9/11. I love that our capitalistic tendencies give way to generosity on epic proportions. Those that have are investing in those in need. We believe in each other, and that is a recipe for success.
- 3. The U.S. in particular will capitalize on the current state and continue to win. Better yet, the administration is counting on entrepreneurs to allocate recourses for recovery. Specifically, as of this writing (March 26) the federal CARES Act is going to impact each person reading this article. The key is understanding what behaviors your government are trying to inspire.
Cash is king
When the various state governments ordered their constituency to isolate from others, it forced many businesses to lay off their staff and close their doors.
Their staff was eligible for unemployment. The problem was that for many living paycheck to paycheck, they could not pay their rent, etc. Unemployment benefits would only pay for food and a few incidentals.
Gov. Sisolak ordered all Nevada courts to stop enforcing eviction orders. While this could be seen as a good thing, landlords still have mortgages to pay.
As I understand the current game plan, the Emergency SBA loan program is designed to give business owners a “loan” to fund payroll, pay mortgages, rents, etc. If they do so in a manner consistent prior to the apocalypse, the loan will be forgiven.
If my reading of the game plan is accurate, it puts money in the hands of business owners to allocate to workers’ salaries — or other opportunities.
If they pay the salaries, they don’t have to repay the loan. If they choose otherwise, they repay the loan with interest (3.75%). I think this allows the people on the front lines to decide how best to allocate resources.
A word of caution
As a business owner, I understand the loyalty to the team. We often refer to the team as family. The current situation, however, has forced many of us to furlough or fire the team/family.
If you opt for the SBA emergency loan route, there are very real guarantees that have teeth. Do not spend a dollar of these funds unless they will either be forgiven, or you can see that it will create a source of repayment.
This is a moment that entrepreneurs need to take a breath and really search your soul for truth. The concept of a mirage is born out of the idea that the mind conjures up a picture to our mind that is not reality in times of crisis. Do not fall into the trap that the easy access to cash is the panacea that will make your world better.
A word of optimism
Fortunes are made in times of need, not times of excess. A prudent investor will deploy capital when promises of return exceed the risks. For many, the CARES Act will provide easy access to cash that will propel a prudent business owner’s agenda forward, and rightfully so. The investor is risking hard-earned capital for the hope of future return.
I also believe that this is a good reminder for those living paycheck to paycheck that having cash in times of trial is the best thing they can have to create opportunities. We live in the most prosperous nation, in its most prosperous season. Carpe diem.
Lastly, understand that the current situation is fluid. What was best today may not be tomorrow. If you are struggling about what has served you in the past and are frustrated, read, “Who Moved My Cheese,” by Spencer Johnson, MD.
Please note that this discussion is general in nature, and not intended to be tax advice. Please consult with a CPA to get answers to your specific fact pattern. Follow me on Facebook to receive updates on current developments.
Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at email@example.com.
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.