COVID 10-Step Financial Guide for Dentists

Hello everybody. I wanted to provide a step by step verbal explanation of our financial planning guide to help dentists go through this experience of COVID and the financial hardships that they're experiencing and create ideally clarity around the step by step process that they can be taking right now to address their financial needs. So this is a document we put together, put a lot of time into this to answer so many of our clients questions, a lot of them resulting from webinars we've done and just daily questions about the coronavirus legislations that have come out and how that applies to them and what they should do with their team members, how they conserve their cash and just how do they survive and come out of this ready to resume their practice operations. And so I'd like to walk through this and explain it in good detail and try to answer a lot of the questions and that you will likely have as you, as you, as you read it yourself. And just at the top a little bit about who we are since we know there will be a number of people who are not current clients. Wondering, I'm sure, who is practice cfo? Practice cfo well, we exist to help doctors thrive financially. And we do this by integrating their CPA financial planning and retirement plan services. And the outcome is greater financial organization, peace of mind and accelerated financial independence. And it's a different model than most CPA and accounting firms. It's really an end to end model that plugs the holes of disjointedness which are often created by having multiple advisors. So this guide is intended to give our clients and other dentists one, an understanding of the recently passed coronavirus legislations and two, a step by step process to determine the appropriate course of action for their practice. There's our contact information. We have about 22 people at our firm. Here are the five CFO advisors who are working directly face to face with you, our clients. And we do so on a regular daily basis. Okay, a little caveat down here. We are not a law firm. Please consult with a labor lawyer for guidance on the labor laws of your state. And this guide is our best understanding from the research that we've done, particularly our research of the new legislations resulting from COVID 19 pandemic. There's three of them, I won't list them off here. You can read that. Additionally, please note, the government and banks are currently working to administer this new legislation. Today is Monday, March 30th. The legislation, the most recent and significant was the CARES act that was passed on the 27th, which was Friday. So literally we're about one business day out from the passing of that legislation. So consequently, there may be some level of uncertainty in the steps in this guideline. We are presenting it to the best of our knowledge as this continues to unfold.

Let's start this, let's start off step number one. So this is a ten step program and in the first step, what we're recommending you do is, is step back. And we know there's various loans out there, we know that the government's trying to get money in your pocket to help support the economy and support small businesses and individuals. But step back for a second and let's try to identify how much cash do you actually need. Let's not just run to the SBA or run to the bank just because we're in a crisis and we're nervous about it. Let's try to be methodical and define what our cash needs are first. So that's step one. Determine the minimum amount of cash you need to get through the next six months and define your target loan needs. Now, the office certainly is going to open up hopefully before six months from now. However, there may be some reservation from patients in resuming even if you can start, let's say back up May 1st. And so we want to do a six month projection here and we don't know, as it says here, we don't know how long before authorities will allow us to resume operations. However, we recommend you determine a target amount of funding from the EIDL or the eidl, the economic injury disaster loan, which we've all been talking about, the SBA 7A loan and any general lines of credit that you have. We recommend determining the cash you'll need in the four primary areas over the next six months. Facilities, debt service, payroll for skeleton staff, and your personal budget. Clearly you have more expenses than those, but those are, those are the largest.

And in making this calculation, reduce the totals by the amount of rent abatement and loan deferment that you're receiving. This resulting sum is your, what I'm calling your disaster cash. Add to that your standard working capital needs to arrive at your, at your total cash needs. Subtract from that the cash you have on hand net credit cards to determine how much disaster loan money you should be requesting in the aggregate. So below is an example. Let's look at this sample. Client facility cost per month, $8,000 in rent and debt service, 9,500 skeleton staff, we'll talk about that. But that's basically your minimum staff needed during office closure. And then what your personal budget is to cover living expenses. And then what we recommend is we plan for six months of facility and debt service and three months of your skeleton staff and personal budget. And so if you multiply that out, you will get to a target reserve required. However, subtract out from that the amount of abatement or loan deferment that you're going to get in facility costs, you might get something I'm finding most people are not. And a quick comment on facility costs is you should ask, don't ask. You don't know if your landlord is willing to abate your rent or provide some support to you. Some will, many won't. Some that will will caveat it and ask for an adjustment to your lease agreement. They might ask you to extend the term of your lease. They might take whatever deferment you do and tack it on little by little in your rent payment in the subsequent 12 months after we come out of this. Either way, it's a good idea to ask them. Be very careful about this because lease agreements have provisions in them and some provisions could be triggered and have negative consequences to you. So our advice is definitely talk to your attorney on the lease agreement if you're going to not pay.

Debt service. Most banks are lending a generous hand, giving two to three months of deferred loan. Some are requiring that you pay the minimum of interest. Others it's just a full deferment as well. So subtract out whatever support you're getting from landlord and the bank to come to your required reserve. So 8,000 times six months, 48,000 less 16,000 equals our 3,32,000. There's our debt service 28, our skeleton staff, that's 8,000 per month times three months equals 24,000. And our personal budget of 10,000 times three months equals 30,000. So you add up this column right here and you have a total of 114,500. Now, normally in any given month, before all this happened, you might have a target working capital, need a cash cushion. And let's say that that's typically 60,000. That helps you feel comfortable getting through the fluctuations month to month of your collections. So you add that up to your disaster cash. And now you have your cash required, $174,000. And we're going to subtract out from that what cash you have on hand netting credit cards. So let's say you have $100,000 cash, but you, you got $20,000 in credit card, your current cash on hand really, your true cash is $80,000.

And from there we will subtract out the cash required from the cash required of 174 to get us through these next six months. We're going to subtract out the cash we have on hand, which is 80, which leaves us with the minimum loan proceeds goal. In other words, this, this is the amount of loan that we are targeting either from solely the SBA 7A loan, SBA 7A loan plus a line of credit that you might have with the bank, or the 7A loan plus the EIDL loan, which you could be applying for right now with the sba.

And I'll talk about here in a moment which ones you should be applying for and perhaps which one you shouldn't be applying for. So action step here is to apply that same algorithm or process to your own numbers using your financial statements. If you're a client of practice cfo, on the financial statements, we have a very specific total on your profit and loss. You can look at your 2019 financial statements in your portal. And in the year to date section, which is January through December, you could look at the total facility cost and just divide that by 12. Or you sort of know what your rent is throwing your utilities perhaps, and you have your monthly amount for your facilities dent service. You should know what that is as well. Your skeleton staff. I have a step later where you're deciding what to do with your staff, but determine the pay levels for the staff that you're keeping on to support you through emergency services and scheduling and billing during the office closure. And then lastly, if you haven't done a budget, financial periods of financial crisis are a great time to do a budget, to be introspective about the way you're spending money, your relationship to money. And I highly recommend doing a budget right now and add that there and then add in the amount that's been being deferred or forgiven or abated there and next column and then just do the math and you can follow the math through to come down to what is the minimum loan proceeds goal that we're looking to get from available resources out there. Okay, so now we know our minimum loan proceeds goal. We'll go ahead and use this example. 94,500. We'll say somewhere around 90,000 is what we're targeting. Step number two is apply for the economic injury disaster loan, the EIDL loan, which will include a request for the emergency grant of $10,000. Now I want to caveat that really quickly and let me Caveat that, and I believe I have it here. If your cash on hand can't float you until you resume operations or receive the 7A loan, we recommend you apply for the EID loan, the Economic Income Disaster Loan and also the grant. Many of you have already done this. Okay, let me pause there.

I don't want you to take on debt just to take on debt. I want you to take on enough debt to get you through this period and then you get back into the pattern of building financial security. And if you have enough cash on hand to get you through the period of time when you can get the SBA7 a loan, which I'm going to highly recommend you get because it's essentially free money, then you don't need to take out the Eidl loan. The Eidl loan is not forgiven. You have to actually pay that back. Now, there's no prepayment penalty on it and the terms are very good. They're under 4% and I believe it's a 30 year repayment penalty on that. They're very good. But again, don't take out debt just because you can. If you don't have enough cash to get you between now and around.

The end of April, beginning or mid May, then you should take out the Eidl loan. Otherwise you're going to be getting the 7 loan, most likely sometime in the beginning of May to the end of June. The end of June is the last. June 30th is the end of funding. If you don't get funding by June 30, you don't get funding for SBA 7 loans. So if you can't get enough cash to last for the next roughly four to six weeks, you should probably take out the Eidl loan. Now, the Eidl loan, if you've already, as of today, Monday, March 30th, if you had already submitted for an application before today, you used their old application system, which was a fillable PDF, and you sort of dragged and dropped it into this, into this Dropbox, I believe, square on the SBA website online. They completely changed that today. And it's a dramatically streamlined process. It literally takes about 15 minutes, even less when you fill that out. So go ahead and do that. I have a link in here, down here at the bottom. To complete this application, you just click here and it'll open up. Let me just show you briefly what that looks like it has, where you indicate your disclosures, business information, business owner information, additional information and summary. It's not asking for debt it's not asking for assets. I mean, it doesn't get more simplified than this. You'll simply click. You have less than 500 employees. You can check all the following that you know that apply here. Basically, you're not committing fraud and illegal activity and things like that. And once you go through this, you'll find it's very straightforward to then include the business legal name, your trade name is your fictitious name, many states, it's going to be the. It's going to be the name of you, your name. Wesley W. Reid, DDS for example. And then your trade name might be San Diego's best dental practice in the world. And you put that there. And then you put in your Social Security, the ein actually for your business or Social Security for a sole prop. Most of you are going to be s. Corporations or sole proprietors. You put that in there. You're not a nonprofit, you're not a franchise. And then really see these reds? Those are the only ones that are required gross revenue over the past 12 months.

That's going to be just really. You could pull up your December 31st financial statements and just use all of 2019. Or if you want to be more precise, you could do February of last year through January of this year. I guess that's what they're saying here. But I'm sure if you put in just the 12 months, 2019, for ease of accessing that information, that would be fine. And then you could really leave all this other stuff blank. If you're not. If you're not in the business of doing rental properties nonprofit. A lot of this stuff doesn't apply. This has combined annual operating expenses prior to the disaster for all secular social services. So this doesn't relate to you. Then you come down here and you'll put in your address, state, etc. The business ownership details and then you'll click next. I'm not going to fill this out, but really the only question on the next page is they ask you, what are your cogs? What are your cost of goods sold? Cost of goods sold is an accounting term. Let me come back to our guide. Cost of goods sold is an accounting term that represents the amount you paid for inventory. Well, you're really a services company. I know you have handbags with some toothbrushes and all that stuff, but really you don't have cost of goods sold. You're not selling products and managing inventory. So technically your cost of goods sold are zero. However, sometimes the government isn't terribly clear about things and that might be Asking for what's your overhead, which would be your payroll, lab supplies, facility, marketing and admin. And.

So we actually don't know. So we're generally recommending people put zero because literally the term cost of goods sold is inventory, which you don't have. Secondly, it doesn't state somewhere, but I believe that the amount you are eligible for has to do with what is your, what's called your gross profit margin. And gross profit margin is your revenue less, your cost of goods sold, since you don't have cost of goods sold, simply your revenue, which is your collections. So I don't, I probably wouldn't put in there what is your profit after expenses. I would actually put your collections in there. Now, that doesn't matter if you've already submitted this and you put your profit instead of your revenue, just you can talk with the SBA when they contact you, which they should be doing to.

Issue the loan, and you can make a note of that and clarify it then. Or, or if you don't get a large amount here, really remember, all you need is the amount needed to get you to the point when you apply and receive the funds for the SBA7 loan. So not the end of the world if the loan is 15,000 or 20,000 instead of 40,000. As long as it's enough to get you through that period of time. Be sure to check the box. I would like to be considered for the $10,000 grant and comment on that. Is you. Yes, it is free money, even if you're eventually denied for the EIDL loan. It's free money, that $10,000 grant. But keep in mind that you also know the 7A loan, which I'll talk about a little bit later. A separate loan can be fully forgiven if you maintain your employee levels and employee compensation. So I'll clarify that. But my point is that if you take this grant, you don't have to pay it back, but it will reduce the amount of SBA 7 a loan that is forgiven later. In other words, the total amount of loan forgiveness is going to be the same to you whether or not you get this grant or not. So if you don't apply for this or you don't get the grant, don't be too concerned as long as you're applying for the SBA 7 loan, the free money loan, and you're going to get that loan forgiveness there. I hope that makes sense. And then you include your direct deposit information and from what the SBA website says, three days afterward, you should receive business days. You should receive the $10,000 grant. Now, you cannot use the EID loan proceeds for the same expenses as the 7 loan. So if you get the EID money and it's in your bank account, then you get the 7 loan later. You can't really be using that to pay for, for.

Say, the same rent. I don't know how the SBA is going to.

Capture your accounting records on that because really the money just goes into one pot and then some dollars go here and some dollars go there. My thought is you're going to probably be spending on some basic expenses just to even being in sleep mode while your office is closed between now and the time you get the 7A loan. So you'll probably end up spending the EID grant money or the EID loan before you even get to the 70 loan. All right, I'm going to skip down here.

Yep, I already explained this. And again, there's the link to apply for the loan. So that is step number two, applying for the EID alone. That comes with the grant. On to step number three, decide what to do with each employee during office closures. So the reason why I wanted you to do the grant first was if you, if you're predicting that you don't have enough cash to bridge you to the 7 loan or to bridge you when you open up operations again and start collecting money, you want to get that going right away then. So now on to step number three. Decide what to do with each employee during office closures. We recommend you consult with a labor attorney. We're not labor attorneys here. However, being accountants, we address these questions all the time. And so here's to my understanding again, qualifying that a labor attorney should be consulted here so I don't get any trouble. You need to make a decision on what to do with each staff member individually. You have the following options and can use them on a staff by staff basis. It's not all or nothing. Number one is you terminate them. Use this option if you permanently wish to terminate a staff. So many of you in many states, particularly California, can often be worried about wrongful termination or, you know, just possible litigation afterwards after termination. This is one of those periods of time where you can just say, hey, I'm terminating you because the business cannot sustain you at this time and we don't need to provide any explanation.

I believe the court system would understand that you had to just let some people go to get through this period. Pay them out their final paycheck, including accrued vacation and in some states, accrued sick which is not required in California. Accrued sick. Accrued vacation, yes. Not sick. Some states required accrued sick to be paid out. Give them termination documents. Consult a labor attorney for proper termination procedures and documents. Note that paying out vacation and or sick in their final paycheck does not prevent them from being eligible for unemployment income. They can file for unemployment and will be fully eligible See the sidebar over here down here for the amounts that they're eligible for. Let me comment on that real quick. It's really important with your staff that you communicate a game plan with them. And it's not that you're insensitive here or heartless. And in letting them go or going on furlough in option two, which I'll talk about in a minute, it's just that you can say, hey, right now I'm paying you X for the next three months through July 31. The government is essentially replacing all or a good portion of that because if you're fully unemployed, meaning you don't have any income, California is going to pay you 450 bucks. Some states it's a little bit lower. Some states it's a little bit higher. And the federal government, as long as you get to my understanding and my research, as long as you get $1 of state unemployment income, then you'll get the full $600 of federal income, which is distributed through the state, by the way. So In California, that's $1,050 per week, an average of 4.2 weeks per month, 10, 50 times 4.2. That's almost $4,500.

Per staff. Now in California, they had to have been making right at about $4,000 a month to qualify for the full $450 per week of eligibility there. So that's a healthy amount. Plus they're going to be receiving, as you can see down here, $1,200 per adult in their home and $500 per child. If their income is under a certain level, which if they're single filing their tax return single, they're going to get if they earn under around $75,000, they're going to get that full amount phased out up to about $100,000. Then they don't get anything. If you're married, filing joint, it starts around 155 to $170,000 that it starts to phase out. So if they make under that amount, they get the full 2,400 for the parents and then $500 for each child. And once you get up to about 200,000, that phases out. What's my point? Your staff are going to be pretty well taken care of during this period of time by Uncle Sam. So you don't have to feel terribly guilty for furloughing them to sustain the viability of your practice during this during this time. So communicate with with them what there are. Maybe point them to the Department of Labor website. There's a lot of fraudulent Department of Labor gimmicks out there, so be really careful about the website that they're going to. So let's go on now to option two.

You can put them on furlough. So these staff still remain on payroll as current employees, but with no current hours or pay. Putting somebody on furlough isn't something you sign or document. It's just the default of what what's happening just by virtue of them not having hours and not not working, but not being fired at the same time. So no final check is is required. These employees will be fully eligible for unemployment. That's an unusual circumstance due to Covid. Normally if somebody's furloughed, they wouldn't be eligible for unemployment, but in this case they are. So use this option for employees you wish to resume once operational. But furloughed employees are ones that really are not a part of your skeleton team. That's option three. Keep them on payroll staff remain on payroll and continue to receive base pay on hours work. This will constitute your skeleton staff for salaried employees. Determine the appropriate hourly pay rate and pay by the hour. Most states allow unemployment income for reduced hours. However, unemployment income is phased out if their earnings are too high, generally around $400 to $1200 a week. In California, if you pay somebody $600 in a given week, that makes them ineligible to receive unemployment income for that week. Keep in mind your staff have to recertify weekly with the Employment Development Department to get their unemployment income. What I would say is have staff do what you need to do to have some income coming in and to be taking care of your emergency cases. I wouldn't say try to force somebody to not work just so that they can be eligible for payroll. Take care of your practice first. That's the heart of all the cash flow for both you and your team. And then whatever the outcome is from an unemployment income to your employees.

Let that be the case. Use this option for employees you need to perform emergency treatments for patients or handle administrative tasks during the office closure. Okay, so here's your action step. List out your employees. Identify whether they are terminated. Furloughed or a part of your skeleton team. And then make any notes, make sure you communicate with them and make any notes that might be helpful to you as you do communicate with them.

Question. Could you go on unemployment? Technically, yes, you could and actually make perhaps a decent amount there. But in most states, if you're working, even if not earning money, that would disqualify you from receiving unemployment income. If you're an S corporation and you're transferring funds to your personal account, that, may I put, may disqualify you. I can't find where the law is clear on this. If you're taking a distribution of profits, seems to me that substance over form you're likely getting paid if you're pulling cash out of the practice to live on personally, and that could disqualify you. Also, the amount you'll likely receive may not be worth all the work involved, paperwork, weekly recertification, etc. And it may increase your unemployment insurance rate, which applies to your full payroll. So you'll end up likely paying more in unemployment insurance each year for potentially years by increasing your unemployment income. Question has often been, are my kids eligible if they were on payroll for unemployment insurance? And I don't know. Depends on the state. I don't. Yeah, I actually don't know. So consult with a labor attorney on that one. My thought is if they're really not working in the practice, and that was a tax planning strategy, which is. It's a good strategy.

Really. I mean, ethically, putting them on unemployment income just doesn't sound or feel right to me. All right, step number four, conserve your cash. Cash is like water in the desert during financial crisis. So here's the action plan. Step number four, furlough your staff members. Terminate them. We discuss that. Number two. For practices established as S corporations, adjust your payroll by either removing yourself entirely from payroll or eliminating all federal and state income tax withholdings. No, for our clients. We've already reviewed each of your payroll structures and made adjustments to reduce your payroll to the minimum required amounts to meet your living budget needs and to fund your 401k. For most of our clients, we are trying to tell you to keep funding your 401k. This is the best time to be doing that. But including the safe harbor profit share portions, and if you have a defined benefit plan, funding that as well. Now, if you can't do that, I don't want to rather see you take out the Eidl loan than stop funding your retirement plan through this period of time. But that could be a last resort to pull that lever and stop funding your retirement plan if needed. Avoid making any quarterly estimated tax payments. Delay paying the 2019 taxes owed until 7:15. There's no penalty for that. Now request a deferment on your bank loans. Most banks are offering them. Talk to your attorney about requesting an abatement on your rent. We spoke about that. Avoid paying vendors that aren't giving you direct support through this crisis. We like to think that practice CFO is we certainly are interacting with virtually all of our clients on a real time basis and putting all of this together for you. We are all working overtime over here. We are however, deferring our tax fees for six months. As a last resort, you can stop funding your retirement plan. We spoke about that. Consider offering a discount to your patients if they prepay for treatment now. One of our clients did that. Thought it was a great idea. Note that federal direct student loans are receiving a six month automatic deferment of payments through September 30, 2020. If you're not seeing that, contact your loan servicer. Check your city's website for financial aid programs available for for example, the city of San Diego had one. It I think is now turned off. It got used up. But you could check in your different cities if they have some local grants. Step number five Start scheduling your patient appointments even if you don't know when you'll resume operations. That may mean you need to cancel if you schedule them too soon and you can't open back up. But it's worth the effort. You want things back in action as quickly as possible when the authorities allow it. Wayne Gretzky said he's one of the hockey greats. I'm a huge hockey fan. I skate to where the puck is going to be, not to where it's been. So that concept applies here. Think about where the puck is going and you want to be skating in that direction. So communicate with your stakeholders. That's your patients, that's your team, your lenders, that's your cpa, et cetera. Schedule aggressively with your patients. Action steps. Use your skeleton team to be reaching out. I would send out a letter to your patients outlining your office procedures to maintain clean sanitized office with the highest level of sterilization procedures. Help them feel comfortable to come back. Personally, very few doctors do this I find yet I think it's such a great idea. Personally reach out. I know that's possibly a lot of phone calls, but hey, you could be at home watching Netflix or you could be calling your patients Personally reach out to your patients to check in on them. Discuss their last treatment and see how they are doing. Discuss upcoming treatments and your plans when the office reopens. In other words, stay connected. Great quote is never let a good disaster go to waste. This is an opportunity for you to really build goodwill with your patients and your team in spite of having to furlough some of them. Let them know you care and you're doing your best. Also, communicate regularly to your staff members to keep them informed. So we spoke about that. On to step number six. Applying for the SBA 7 loan shortly before.

You permitted to resume operations in your state. This is really important. We recommend our clients and dentists generally apply for the 7A SBA 7 loan. It's virtually free money. If you resume your staff at the time immediately when you receive those funds, which that might be may, may be June and during the eight week period after that you're at full staff. Even if you don't have patients filling your chairs all the time, you're going to get the government to pay for your staff while they're there for really 2.5 months. Months, because that's how you calculate the amount of the loan is two and a half times your average monthly pay. So that's for if you're on a bi weekly or bi. No semi monthly payroll. Most of our clients are twice a month. That's two and a half months that the government is paying for your staff. That money can be used for some other things as well, which I'll mention down here, but these loans have highly generous provisions. Provisions. However, we don't recommend you apply until shortly before you are able to resume full operations according to your state's authorized timelines. Also, you must receive the funds by June 30, so the latest to apply would likely be, I would think, early June. So admittedly there's a timing element here and I'm going to talk about that in step number seven, so stay tuned. But here are the provisions of this loan. What's the maximum amount that you can get? You can get 2.5 times your average monthly payroll cost during the one year prior to the loan application. It excludes any individual staff wages in excess of $100,000 for a given staff. It also includes anything you pay for employer paid health insurance and.

Employer paid 401k and retirement client contributions. It does include your own pay as the owner. If you're an S corporation or C, you're receiving a W2. It includes your spouse W2 as well. So it just doesn't include any pay in excess of $100,000, however. So the required use of the funds, they must be used for salaries and wages. But that's not all. It can be used to pay your payroll processing costs. That's going to be MyPay solutions or if you're with ADP or paychecks, whatever the cost of group health insurance, rent, payment of interest, not the principal, but the payment of interest on any mortgage or other debt incurred before February 15th and utilities. So in other words, you're going to use that money, no problem. Terms 4% under and up to 10 years. Loan underwriting requirements, just that the business was in operation as of February 2nd and most of you closed down your office. Pretty much all of you after February 15th. Sorry, not second, February 15th. So pretty much all of you, I would believe were operational then. And you certify the uncertainty of the current economic conditions make necessary the loan to support the ongoing operations. Now, here's where there could be an ethical issue. If you're sitting on a million dollars in your practice, you're a hoarder of cash and you haven't wanted to do anything with that. Do you really need to get a 70 loan to get you through this period of time? Well, in a way you're sort of penalized in a sense for having cash on hand or.

You know, but you know, that's your call. That is your call. But that's what you have to certify is that the uncertainty is so significant during this economic condition that it's necessary for you to take out this loan to support your ongoing operations. Also, you certify that funds are being used to retain workers, make loans and lease payments, rent or utilities. And you have to have a reasonable credit score. I have no idea what the SBA is considering a reasonable credit score, but they do look at your credit score because again, other than the grant, you are supposed to pay back this. I'm sorry, that's the EIDL loan, the SBA loan. If it wasn't used for those purposes, theoretically you would have to pay it back. So they are. Want to know your credit scores? All right. Amount of the loan that can be forgiven is the amount used for qualified expenses listed over here in column two. As long as you use it for those, and then it's reduced for any reduction in total staff during the eight week period after you get the loan relative to a prior period, which there's actually a couple periods, one of them is in the prior year and then it's further reduced if any of your individual employees see a 25% or more pay cut, which I suspect you wouldn't be doing that. So really, this is the big one here. Let me also emphasize that these 7A loans, these SBA 7 loans, as I clearly I stated earlier, these are totally separate than the Eidl loans. The Eidl loans which you're getting directly from the SBA website, these are all received by from a bank. The government is distributing a whole lot of money here and they're using banks as their channel to administer these loans. They're simply guaranteeing these loans and they're paying the banks money to process these loans. As of today, March, March 30, Monday, the banks have not started taking SBA loan applications based on the new CARES Act. I reached out to all the big banks today and they all said the earliest I heard was possibly this Wednesday.

Which is April.

1. A lot of others are saying by Friday or I think most likely. The reality is it's going to be sometime next week, the week of April 5th. And could you apply for that at that point? Yes. But remember.

You want to make sure you're open for business legally. The health officials have allowed that and your staff are fully on board before you get that money. So be careful not to apply too early for that. So the SBA regulations require that within 15 days of enactment, that was Friday, that the banks be ready for this. Hence, it's possible that lenders could begin taking loan applications as early as later this week. It really important only work directly with your lender on this or a bank directly. Do not find some Google form and start filling it out. There's a lot of fraudulent sites already out there and they're designed to capture your personal information, possibly sell it or sell leads to banks. Because banks will make money off of this. No doubt about it. Banks, they're not charitable organizations and they're not in it if they're not making a profit.

From loan origination, which the government's going to pay, and from interest. And so be careful on which forms you fill out should be directly from the bank. So here's your action step. Go ahead and estimate the amount of loan you'll be eligible for by completing the table below. This is just to get a general idea. You don't really need to reach out to us CFOs unless you really need the help. But what you could do is just look at your W2s from last year. Or heck, you can look at your W3. It's in your MyPay Solutions portal. The W3 is the sum of all the W2s, and just use that number less any payroll that was above 100,000. So if you paid yourself as the doctor, 200,000, you would need to subtract out from your W3 $100,000. Most likely, you didn't have anybody else on payroll making over $100,000. If you did, you need to subtract the excess of their pay over 100,000 also from the W3. The interesting thing about this is if you have a 1099 associate, an associate that's not W2, they're an independent contractor, you can include them in calculating the amount of loan that you're eligible for. That was pretty cool. Of course, it's up to $100,000 total employer contribution to a group health plan. So there you could simply get from your health insurance provider what you paid in premiums in 2019. If you're paying for 50% as the employer, just take 50% of that amount. And then on the 401k as well, if you simply look at your 2019 tax return on the main page, it will say contributions to a retirement plan. There's your number. Alternatively, you can reach out to Brandon Hobson, our director of investments, and he could tell you that number very quickly. So then you add up all those, those boxes and you have a total divided by 12 times 2 and a half. And that's the amount that will ballpark you will receive as eligible. So let's take an example. Let's say that your total staff last year, you can see my calculator here, your total staff cost last year were 500,000.

And you were paid 150,000 of that. And you were included in that 500,000. Well, you were paid 150, so we have to subtract out 50,000, because remember, you can only use up to $100,000 in compensation. So you're at 500,000 less 50,000 equals 450,000. Let's say that you also paid a.

And so let's say you didn't have an independent contractor associate. You paid your group health plan, and let's say you paid 20,000. So plus 20,000 equals 470,000. Your total employer contribution of the 401k, let's say that was 20, actually. I mean, that's going to include employer contributions to yourself as well. So let's say that ends up being 50,000.

And so now you're at 520,000. Divide that by 12 to get your average monthly and multiplied by 2.5, which is what the law states for the 70 loans, and you're at $108,000. That is potentially $108,000 of purely free money. Now, it's free to you right now. Don't get me wrong, we'll all be paying taxes for it later, but this will be free money to get you through this period, as long as you immediately hire your team back when you get the funds. So that is a healthy amount. It's going to be likely a lot more than you're going to be eligible for under the Eidl loan. Really important comment on this is that if you took out, if you got the Eidl loan, then you need to refinance that into you want to refinance that into the SBA 7 loan. From my understanding, you can't have both. It's my understanding could be wrong in that, but you can't have both. So you want to refinance it into that. So let's say you had, going back to our example, let's say you had $30,000 of SBA EIDL, the EIDL loan, excluding the grant, $30,000 of loan. You, you would add that to this number plus $30,000. So here's the amount of the 7 loan is $138,000. Of course.

The amount you'll receive will be less that $38,000 because it's refinanced or it's eliminating the Eidl loan that you already received. So you would have an SBA loan of $138,000. You'll land in your bank account $108,000. The $30,000 EIDL loan disappears and you're left with just one loan and $108,000. Okay, coming down here, determine if your primary bank is an SBA lender. So here's the next action step. Go to your primary bank. If you're with bank of America or Wells Fargo or Citibank, a lot of great banks out there. First citizens, so many good banks. Ask them if they're an SBA lender. Every one of those banks I just mentioned is an SBA lender. And they're all working on getting the applications ready. Some of you might be with lendevr. They are not an SBA lender. So simply go and ask your banker, good chance that they are already and just use them to get the SBA loan. If they're not, then you can go to another bank and the other bank's going to be happy to do it because these are non secured debt, meaning they don't have to have a first UCC or lien on your practice. It's really an unsecured debt and so the government's backing it 100%. So most banks are going to be happy to do this.

So this is true even if you don't need all of your staff. By doing so, you're maximizing the amount of forgiveness you'll be eligible. It must be applied for. See, this is actually. This is actually wrong. I apologize. I need to make a change here. You have to receive the funds by June 30, so I will come back and change that. All right. Step number seven upon receiving the seven day loan proceeds, make sure you've reengaged your team at full or close to full capacity to be eligible for the highest loan level of loan forgiveness as stated. This is really important as stated above because the amount of the loan forgiveness directly and only correlated to your staffing levels and pay. Remember, you can use it for rent and you can use it to pay utilities, et cetera. But the amount that's what's determining the amount of forgiveness has nothing to do with your rent or your utilities. It has everything to do with the number of staff members you have on hand when you get the funds and how much you're paying them.

It's critical that your team is re engaged at the time of receiving the 7 Loan Proceeds or immediately after. Timing is important. Ideally. Ideally, you'd receive the seven loan proceeds and hire a staff to the exact day your state authorizes you to resume practice operations. Admittedly, that may be difficult. We therefore recommend you engage enough staff to meet your patient needs on the day you reopen doors. Then immediately upon receiving the 7A loan which should be after you actually reopen doors and are back in action, then you get the seven day loan. @ that point you re engage any remaining staff. If you permanently terminated an employee during the office closure and plan to hire a replacement, it would be best to do so quickly. Thereby one taking advantage of the high number of people searching for jobs right now and giving you more access to top talent and two Getting you back to full employment for purposes of loan forgiveness. Also remember that you can use these proceeds of the 7 loan to cover your payroll, rent, interest on loans and utility. Alright, so here's your action step re engage your full team if they're not already at the time of receiving the seven loan proceeds which should be after you open your doors back up for Business. This assumes your state has authorized you to do that. Step number eight, complete applications to provide loan forgiveness after the eight week period. So you let's run a hypothetical, let's say May 1, you're back working in the office, you apply for the 7A loan, you receive it on, let's say June 1st, and you've now rehired your staff fully at that point to the same levels as they were a year prior. And now from June 1st through July 31st, that is the period, that's the key period where your employees need to be at full count, at full headcount, because that's the period where they will measure whether or not you retained your employees. Keep in mind that 7 loan is also called literally the Paycheck Protection Program, the PPP that's in the bill itself. So the whole purpose of that is for you to rehire your staff and protect their paychecks. Okay, so how do you calculate that amount? Well, when you get the application at that time, and we don't have these applications yet, it's going to be a while before we see the loan forgiveness applications.

It's going to be a while, but when we do, it'll outline that for us. But conceptually, the amount that's forgiven is the amount of 7 loan you received, which we showed you up above times this quotient, this number and that quotient is your full time equivalent staff. FTE stands for full time equivalent. And all that means is a part time staff is not a full time staff. If you have two part time staff that are working 30 hours a week, we're going to call 30 hours full time. If you have two staff working 15 hours a week each, that's 30 hours. Those two staff together equal one FTE, one full time equivalent times your full time equivalent during the eight weeks after receipt of the seven day loan, divided by the full time equivalent before. I'll state what before is here in a moment less the EID grant. So that's important. You can't get a forgiveness of the grant and a forgiveness of the full 70 loan. The total forgiveness amount is going to be the same. So if you already got a forgiveness of the grant and let's say that was $10,000 and you got a seven day loan of $100,000 and you have a quotient here of one, then you're going to be forgiven $90,000 and you'll have to pay back the remaining $10,000 on the seven day loan. So that equals your loan forgiveness. So here in the denominator calculating the full time equivalent. What is that before? Well, it's February 15th, 2019 through June 30th of 2019.

It would have been easier had they just said February 1st. So you don't have to figure out half a month there, but February 15th through June 30th or January 1st, 2020 through February 20th, 29th, 2020. And the regulations say in the bill that you can choose just kind of cool because you want this to be low. The lower this, the lower. We're comparing how much we rehired our employees to what they were at levels they were at before the crisis, the better. So a lower denominator equals a higher quotient.

And, and so you can choose. I would run at the time, at the point in time when you're completing this application, I would run these both and see which one has the lower fte. And you put that here. By choosing the one with the lower FTE, you're increasing the amount of the 7A loan that can be forgiven since the denominator in the quotient is lower. Note that the seven day loan received does not include the balance of an EIDL loan refinanced in into the 7 loan. So this 7 loan received is excluding any amount of the Eidl loan that was packaged into this. So that's excluding that. Let's come and look at a couple examples. First, let me explain fte. I sort of explained what that was earlier, but here's some examples. You have six full time employees and three part time employees working 15 hours. So what's your FTE? Well, it's the six full time and then you've got three part time employees each working 15 hours. So if they're working 15 hours a week, that's 45 hours a week total between those three employees. So if you divide that by what we're calling full time at 30, that equals 1.5 FTE. So 1.5 FTE plus your true full time employees equals 7.5 FTE. That's what you would then put here in the calculations of the loan forgiveness. So let's look at some examples. Example one, you did not get a grant, however, you got an EID loan for 30,000 and then you got a 7A loan subsequently for 80,000. And so if you refinance, which you should, you refinance your EID loan into the seven day loan, your total seven day loan is going to be $110,000. 30 plus 80. And let's assume that your Full time equivalent quotient. So this, this calculation right there is a hundred percent, which simply means you fully rehired your staff.

And so we're assuming that the EID loan was refinanced into the seven day loan, which I mentioned. So your seven day loan is actually 110,000.

Then the answer down here is using this formula up above, Right here is 80,000. The total amount of the SA loan. Before refinancing, we're going to take out the amount refinanced of. You know what, I have got this wrong. So glad I'm doing this. Here's how the calculation should be. So I'm going to, I'm going to send out the guide. It's going to make a correction here. This should actually be $120,000 less the $30,000.

Times 100% which is going to be 50, which is going to be $80,000 times 100% equals $80,000. So again, there's so much happening so fast and so real time. We're trying to get this off the press. I apologize for some errors here. The PDF that we'll send out with this video will have this updated because the total amount of the SBA loan is going to be the sum of the refinanced Eidl loan and the 7 loan calculated as 2.5 times your average monthly payroll. So let's go on to number two. In this case, the only difference is you did get a grant and it would be 120,000 less the 30,000 that was refinanced times 100%.

Equal. Oh, and then you have to subtract out the grant of 10,000. So in this case it would be your $80,000 less the $10,000 of therefore $70,000. So that sort of makes sense. Your 7 loan excluding the EID loan is $80,000. And assuming you rehired your staff, you're going to get all that back. And assuming you rehid your staff and you did get a $10,000 grant from the EIDL grant, then it's going to be 80,000 less your 10,000, which is $70,000. And then in a scenario, same scenario where you only rehired back 75% of your staff, it's going to be 75% of the amount. So again, I apologize for that and I just, I can't go back and do this full recording, but I think you understand the calculation there. All right, action steps. Once the eight week period after receiving the seven loan proceeds has elapsed, apply for the loan forgiveness. Calculate the two FTE periods mentioned above and select the one with the lower fte. Work with your CFO advisor to select the appropriate terms on any remaining balance after loan forgiveness. All right, step number nine file your 20191040 tax return by July 15th. The tax due date has been moved to July 15th, although you could extend beyond that to October 15th. We recommend you file your tax return on time so you understand refund or tax what your refund or tax liability is. I have to talk with our tax director. It could be that they're extending the extension. Actually, not quite sure about that, but we'll find out. So this will affect your plans to achieve your desired working capital reserve. We need to know what you're going to owe for taxes for 2019 or any refund that you're going to get. So action step. File your return and action step number 10 or 10 build your financial walls back up. As I stated earlier, never let a good crisis go to waste. Use this crisis as a time to realign your finances with your values. Experiences like this reveal so much about our relationship to money, how we prioritize our spending and our savings, how we prepare for emergencies, and how we prioritize our dollars. We should come out of this experience with a renewed desire to prepare for our financial future by spending less than we earn, building our working capital and emergency reserves, and making a plan for financial independence. So your action step is to do that. So we will be keeping you updated with our global emails. Go to practicecfo.com where we're continually updating our blog section, our questions and answers. We're going to update this document and post it there as well. We'll create a link for this webinar and put it there as well. And we hope it's helpful to you.