"I'm From the Government and I'm Here to Help!"
On August 12, 1986, while his making opening remarks at a press conference in Illinois President Ronald Reagan called the words in the title of this blog “The nine most terrifying words in the English language!”
I guess he had never heard the words “Mark, your wife’s divorce lawyer is on the phone!”
But we all got the joke: Government action tends to hurt more than help us (the video of the Reagan quote is below btw, if anyone wants to see it).
While Butternut and I got fat on Guy’s cooking and the economy of the United States teetered on the edge coma, it seems our government got to work on the economic response to the coronavirus pandemic!
Announcements came quickly and from all sides of the political aisle: help would be here soon for small businesses damaged by the coronavirus outbreak!
We’ve all seen this before!
Some crisis or natural disaster befalls a region of the country and by the time the government finishes helping, we are no better off AND all the money is gone: Hurricanes Sandy and Katrina? The recent storms in Puerto Rico?
But on March 27th, 2020 the Coronavirus, Aid, Relief, and Economic Security Act or CARES Act was signed into law.
Forgive me for having low expectations!
It’s far too early to tell whether or not the CARES Act will be the silver bullet that helps us kill this beast or just another plastic bottle in the landfill of life, but it’s not too early to say this:
The CARES Act WILL help the dealers in this channel survive!
At least for the next eight weeks! Read on.
I’ll leave it to people smarter than me to figure out the long-term solutions for this mess. Politicians and economists will have their say and history will pass its judgment on the CARES Act and whether it was too little, too late, too much, too early or just right.
But no matter the long-term plan or prognosis, for right here and right now you’d be crazy NOT to take advantage of the programs which the government is offering under the CARES Act!
I am not going to go in-depth into the details of the act; there are others who do it better! Such as right here! This is a link to a terrific document put out by Castle Wealth Management. They work with the PDRA and have a robust business with independent paint retailers. I was so impressed with how straightforward and clear this document was in explaining the 247-page legislation that I got in touch with the author Gary Pittsford, and recorded a podcast with him!
You can listen to it here! In less than 30-minutes, Gary gives you a clear and in-depth look at your options under the CARES Act.
While I leave it to Gary to get to the details of the act, let ME go to the point:
If you are an independent retailer, you need to put down everything you’re doing (other than listening to my podcast or reading my blog) and IMMEDIATELY go to your bank and apply for a loan under the Payroll Protection Program (PPP) of the cares act.
Without going into too much of the details here (read the doc or listen to the pod for specifics) this is not really a loan at all! It’s more of a grant or gift from the US government to your stores. Here’s how it (roughly) works:
Through the PPP program as administered by the SBA, just about every business in American is entitled to borrow 250% of their monthly payroll!
Two-times your monthly payroll PLUS 50%!
The term of this loan is EIGHT WEEKS! If you keep your staff in-place for the eight weeks that this loan covers, the FULL LOAN is forgiven and you get to use balance for anything you like (for the most part) to support your business: rent, utilities, health insurance and a few other expenses are eligible.
How EXACTLY does it work?
A friend of mine owns a store that had a payroll on February 15th (the effective start date of the CARES Act) of $55,200 per month. That made him eligible for $138,000 “loan.”
Of the $138,000 he gets he’ll have to spend $110,400 of it on payroll leaving $27,600 for him to spend on other business expenses!
Not bad for eight weeks!
But it gets better than that! Because some of that $55,200 a month in payroll was his own paycheck! That’s right; the government is PAYING HIM to save his store!
And he owns the building! So, if he uses the non-payroll portion of that money to pay rent….he’s double dipping!
In the coming months, many of us will be forced to make some difficult decisions about our businesses. As the economy reopens; and it WILL, many dealers damaged by this outbreak will be deciding if rebuilding their business is for them.
These are both personal and financial decisions that dealers will have to make. Rebuilding our businesses after this event will be hard and some dealers, bringing age and other factors into play will have to decide if they even want to do that work. And if they do want to continue AND feel their business can recover, they’ll may need to recapitalize their business with their own money or perhaps even borrow money (there are more traditional loans available through the CARES Act as well).
Those decisions will take time to get right.
So, use the government’s money to stay opened for the next two months and see where that lands you! It’s a money-maker for sure! It comes with no risk, keeps your staff employed (and gives you time to deploy them in other ways that prepare your business for “normal” operations). It throws your landlord a bone or even better if you own the building and more important than all of that: It gives you time to think and plot your future course!
So do it, and do it NOW!
The government has set aside $349Billion for this program and it’s first-come, first-serve! As much as $49Billion was already approved so the money will go fast! Three hundred billion doesn’t last as long as it used to!