From The Co-Founders


Tips, Tactics & Strategic Insights and Commentary
from The ROI Co-Founders, Pat Johnson and Dick Outcalt
Outcalt & Johnson: Retail Strategists LLC; Retail Turnaround Experts

PPP "loan forgiveness?" Remember, some strings attached

If 2020 was the year of pandemic disruption and scramble-to-survive mode for retailers, 2021 may be the year of relentless Retail Is Detail reminders.

Many of you may well have benefitted from one or more rounds of PPP loans and their potential "forgiveness." Now comes the reminders that you must seek forgiveness. In writing. From the bank that  loaned you the funds. And there are some time deadlines involved. Yikes.

Oh, and total forgiveness may not be forthcoming. It depends. (See below for these guides* and disclaimers from the SBA.)

Then there are the so-called "bookkeeping details" surrounding all this.

As reminders:

  • Proceeds from loans are not revenue or income; they do not show up on the P&L at all.
  • Repayments of loans are not expenses (only the interest on loans is an expense on your P&L.)
  • Instead, the cash in from loans shows up as cash on your Balance Sheet until you spend it. In the case of PPP loans, the offsetting entry on the Balance Sheet would be a liability until such time that the loan, or a portion of it, is in fact forgiven. The forgiven amounts then would increase the equity.
  • Remember, the Balance Sheet has to balance! 

Why does any of this matter? Isn't it really something just for my accountant to worry about? 

Actually, no! 

This matters because it has much to do with your cash flow (and your accounting accuracy), which has everything to do with the survival of your business. 

Too often, retailers have been focusing on top line sales or bottom line profits, only to discover they have run out of cash. Remember, unless you are on the Cash Method of Accounting, profits are not cash. 

But, especially in today's environment, there seems to be a lot more money available for retailers. The bank may be willing to extend other credit to you (if personally guaranteed.) And your vendors, eager to get more product out the door, may be dangling ever-more-generous terms. Even landlords are extending credit of a sort. 

Take a very cautious view of additional "easy money."

  • No matter what enticing terms are offered by your vendors, how much cash will you have available to pay for that inventory after you have paid for other basic expenses?
  • And your expectations for that cash are based on what sales expectations? (Are your customers really up to that?)

Instead, by looking ahead, knowing what your PPP repayment obligations (if any) will be, you are better able to know what your other choices are. 

Time to "Turn on your financial headlights!"** Look ahead with confidence to see the cash flow implications of your choices. Then you can decide. 

PPP Loan Forgiveness, U.S. Small Business Administration, Paycheck Protection Program 

"Only  an overview of the PPP Loan Forgiveness process."

** Take advantage of The ROI's 3-in-1 INTEGRATED Cash Flow calculator, more info here.

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