As CPAs, our role as trusted advisors to our clients has taken on greater urgency than ever before.
Over the past week, the partners of our firm - Shimmerman Penn – decided to move the whole firm to a virtual working platform to safeguard our team. Fortunately, due to proactive planning, we had already put in place many solutions for working remotely and we’ve settled in quite well. Our partners are on daily calls. We’re checking in with our staff regularly, and have now reduced their working hours to pre-tax season levels, to provide some additional support as we all adapt to this new way of working.
We’re publishing regular bulletins to update clients on the firm’s operations and processes for exchanging documents with clients, arranging for incoming online and EFT payments, as well as guidance from our Governments about relief for the filing of tax returns and the payment of tax instalments. We will continue to issue bulletins as new developments arise.
I’ve been speaking directly with clients about the specific challenges facing their businesses, mainly relating to cash flow priorities. Here are some of the key points we’ve been discussing:
Billings and Collections: As you know, your business’s billing cycle is its financial lifeline, and it’s essential that regular invoicing protocols are maintained. Collecting Accounts Receivable remains a high priority. Business owners and senior management are stepping up to take a more direct role in contacting clients and customers to negotiate terms for payment that work for them, with a goal of maintaining positive relationships. Options for electronic funds transfers, through online banking platforms or wire transfer are becoming more attractive.
Temporary Wage Subsidy: The Federal Government has announced a Temporary Wage Subsidy for Employers. This is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA). Information and details about whether your business qualifies can be found here.
Managing Expenses: Add an expense line to your accounting records to capture financial information related to COVID-19. This includes direct expenses such as supplies, computer hardware, employee cost reimbursements, and also the notional value of owners’ time spent in meetings dealing with changes to the business. This information will be needed to obtain relief from governments, landlords, insurance companies, banks and other stakeholders.
Deferral of Payments: Governments, Landlords, Banks and other stakeholder groups are providing relief through various measures.
Canada Revenue Agency: Corporations and individuals are permitted to defer the payment of certain tax instalment payments to August 31st. To date, there is no deferral on the remittance of HST and Payroll, as these are funds that businesses hold in trust for the Government.
Landlords: Canada’s largest commercial landlords have made public statements about deferring rent for certain tenants. The monthly payment includes two components: (1) base rent, and (2) common area maintenance costs (CAM). An option to consider when approaching your landlord is to ask for a deferment or reduction of the base rent, while you continue to pay the monthly CAM.
Insurance claims: Whether or not your business will be entitled to “business interruption” insurance coverage for losses related to COVID-19 will depend on the specific terms and conditions of your policy. It will also depend on an analysis of the facts surrounding the circumstances of the loss, and how these apply to the policy wording. This is a good time to undertake a full review of insurance policies and coverages.
Banking covenants: Many credit facilities agreements include “Debt Service” and “Debt to Tangible Net Worth” covenants. These covenants are dependent on the business generating sufficient operating cash flows to cover annual payment of principal and interest as well as maintaining a healthy level of leverage in the Balance Sheet. As earnings of the business are expected to decline in 2020, it is important to approach the bank to reset these covenants to a sustainable level for the business. Prepare a projection of your conservative estimate of revenues and expenditures, and a summary of the costs incurred dealing with the changes in the business.
Legal contracts: Law firms are assisting their clients to review their legal contracts to understand how contractual rights and obligations under an agreement are affected. This includes situations in which you are a party, where you or your counterparty claims that it cannot perform its obligations under an agreement as a result of an event such as the current pandemic.
I will continue to share information with you on how you can take action to manage your business through this period of change. Please reach out to me to have an in-depth discussion on strategies and tactics for your business. Also, feel free to send me your suggestions for topics you would like me to research, or comments you would like me to share with others.