Why Your Net Income and Cash in the Bank Don’t Always Match

July 1, 2020 in Accounting
Cash Basis Accounting

As a business owner, gazing over at the profit number on your income statement is always a nerve-wracking moment. Though your profit may look good, you may be surprised to find that the cash account on the same balance sheet isn’t an identical number. In fact, it’s probably lower. However, these instances aren’t uncommon, especially for small businesses. To get a better grasp of where your cash has gone, it’s important to understand the relationship between your profit and cash flow and how each of these is calculated. 

What is Profit?

Your profit is equal to the amount of revenue you make minus the expenses associated with the process of earning that income. This indicates whether or not your company is still sustainable. 

What is Cash Flow?

Cash flow, on the other hand, has nothing to do with your revenue. Instead, it measures your ability to pay bills and your team. To calculate it, subtract the cash paid out during a certain period from the cash received during the same period. If your cash on hand results in a negative amount, it means that you’re spending more cash than you’re bringing in. 

What is the Difference Between Profit and Cash Flow?

Take a look at this calculation. 

Profit = revenue ($10,000) – expenses ($5,000) = $5000 total profit

Cash flow = cash-in ($5,000) – cash-out ($5,000) = $0 total cash flow

The occurrence of a positive profit number but low or negative cash flow is often an accounting issue. Sometimes, expenses aren’t recorded on the income sheet or the period of calculation for both amounts doesn’t align. 

These financial statements are calculated using accrual basis accounting, which means expenses are only reported when all goods and services are completely consumed, regardless of when your bill was paid. 

Similarly, revenues are only reported when products and services have been successfully delivered to a customer and the company can receive a cash payment, regardless of when the customer actually pays you. 

Should You Use Cash Basis Accounting?

Cash basis accounting refers to the tracking of cash within a business to calculate a net income number and more accurately reflect a business’ cash in the bank. Though this method may seem more reliable, it doesn’t reflect a company’s true profit of the month. Standard accounting practices that match expenses with their associated revenues during a reporting period is far more definitive. 

Why Cash Flow Changes

Remember that your business is receiving cash flow from three major areas: operations, investments, and financing. If you’re experiencing negative cash flow it might be due to the following reasons. 


  • Higher overhead spending


Managing a business requires investing in people, rent, tools and more. Typically, costs that aren’t directly associated with servicing a customer or producing the product is what we call overhead. You may also hear the term “Selling, General & Administrative Expenses (SG&A)”. If your cash flow is negative, you may want to check to see if you’ve over-hired, spent too much on unnecessary tools and more.


  • Offering customers credit


Although offering credit is a great way to increase sales, cash isn’t immediately added to your bank account. Instead, credit shows up on your income statement but only reflects a customer’s legal obligation to pay for the purchase they made. 


  • Making other investments


Over time, you’ll likely start purchasing equipment, tools, and other long-term assets to account for the expansion (i.e. growth) of your business. Though this expense won’t be recorded in a single period, accounting services will expense the asset gradually through depreciation. 


  • Repaying loans


Similar to personal credit card and student debts, businesses incur debt as well. You will notice cash flow decreasing as your business pays down its loans. Ensure your business has the capacity to pay off its debt or it could signal trouble for the business.

Final Thoughts

For an accurate representation of your cash flow, it’s important to take a closer look at changes in your balance sheets. You might spot “missing” cash in hidden assets such as inventory, fixed assets, or insurance. 

For personalized bookkeeping services in Boston, MA, that take the headache out of numbers and taxes, feel free to schedule a free call to learn more about how we can help you grow and manage all your accounting needs.

4 Tips to Maximizing the Use of a Professional Accountant – Our Guide

June 24, 2020 in Accounting

One of the more difficult nuances of owning a business is having to handle the company’s back-end. Working on the day-to-day operations is difficult enough, but having to work out the bookkeeping and accounting processes at the end of the day can be excruciatingly grueling.

While it may seem doable from the onset, figuring out your business’ accounting will just become more difficult as you grow bigger. Not only will you need to keep your books align and clean, but you’ll also be facing the difficulty of computing for taxes for entrepreneurs. 

The best way to avoid any issues is to take on the help of a professional accounting service to handle your business. As expensive as that move may seem, there are ways for you to maximize their use in order to boost your business further.

Think for the long-term

One basic mistake that an entrepreneur is prone to make is thinking that an accountant is merely for the short-term resolution of accounting issues. Although they can most definitely rectify the most immediate issues your business has been making, their goal should be to ultimately make this process easier for you to handle.

Apart from your own goal of long-term improvement, your accountant should be on-board as well to provide long-term solutions. If all they’re thinking of is simply short-term goals, then you’re probably better off finding someone else to help you out.

Discuss your business goals

When an accountant starts working for you, it’s best to make it clear just exactly what you want. By setting a clear business goal from the onset, you can both work hand-in-hand to find the best path to achieving that goal. 

Beyond simply establishing a direction, your accountant can make it absolutely clear what exactly can and can’t be achieved given your current situation. While you may think that overall business goals aren’t the business of your newly hired accountant, they can help streamline you towards that goal—especially if your goal involves the flow of money.

Build trust and transparency

Your long-term goals can only be achieved with a solid and sound plan. This, however, can’t be crafted well if you aren’t transparent to your accountant. By building trust with your accountant, you can ensure that no stone is unturned—allowing you to avoid any potential issues with the IRS. While it is understandably a terrifying thing to open up all your financial records to an individual, your accountant will be your best option to safeguard it and your business in entirety.

Review Their Work

Professional accountants are experts in their field, but that doesn’t mean you don’t get to check in on their work. While they may ultimately know the best path to success, you can also take a look to ensure that the entire process is as seamless as it can be. An outsider’s eye can help find inconsistencies in data and help build better and easier processes in the long run.


As troublesome as it might be, your business’ accounting processes is one of the most crucial components of your business. By taking on a professional accountant, you can push your business even further—for as long as you utilize their services optimally.

Are you looking for an accounting service for your business in Boston? At A4E, we provide accounting advice and services to help you ease the entire process for minimal errors. Get in touch with us to learn more about how we can help save you time, money and grow your business.

5 Accounting Mistakes Small Businesses Should Avoid – Our Guide

June 17, 2020 in Accounting, Resources
Accounting Mistakes Small Businesses Should Avoid

Today’s small businesses largely benefit from having technology like accounting software. It streamlines bookkeeping and accounting tasks for small businesses. However, it does not make companies impervious to errors and accounting mistakes. On the contrary, it might make things like improper categorizations of transactions more common. Still, these mistakes are small and easy to correct.

There are others, though, that are more serious. Poor accounting can distort the real picture of your business’s financial situation. If you have bad accounting practices, it may lead your company to insolvency. 

Here are some common accounting errors, and how they make it difficult to run a small business:

1. Failing to record business-related transactions

From petty cash purchases to large payments, you have to note and categorize every transaction properly. Taking accounting seriously will give you an accurate picture of your company’s funds, and lets you see your performance over time. It will help you make better forecasts and will let you justify the need for certain capital expenditures.

Establish a detailed bookkeeping and accounting system that lets you categorize your assets and liabilities accurately, and allows you to perform monthly checks on your accounts. It is the first step in keeping your business organized and financially stable.

2. Putting off reconciling your accounts

Reconciling is the process of verifying if your account balance is accurate and matches the balance in your bank account. Small expenses and operating costs can add up. When left unrecorded, you might not be able to remember why you are left with a deficit in your ledger. 

For small businesses, this should be done on a monthly basis. Reconciling accounts ensures that all transactions and expenses are tracked. As your business grows, you will find it easy to stay on top of your finances if you establish this routine early on.

3. Not allocating a budget for projects

Do not get into a project without knowing exactly how much it would cost. This is an easy way to end up with an inflated bill; you are more likely to spend more than you intend to if you don’t set clear limits before the project starts.

Not setting a budget would undo any good practices you set in numbers one and two; if you don’t know how much you are willing to spend, you will likely forget to record all the transactions you need to complete a project.

4. Not being strategic with profits on projects

If you close a long-term deal, that usually means you are getting a hefty sum at the start of the project. That can make it seem like your company has plenty of cash; however, don’t consider profits as liquid funds, especially if you haven’t delivered the complete product yet. 

You have to account for delays or increases in cost. Your $20,000 project might end up costing twice as much as planned; if you received a $50,000 advance and allocated the $30,000 for cash flow, you might find yourself in a tough spot in the middle of the project.

5. Not specifying employees and contractors

If your business has employees, you have to get specific on whether they are part of the company or if you are hiring them as outsourced personnel. You would have to know the difference between contractors and employees, and the accounting consequences of hiring either type of worker.


Poor bookkeeping and accounting will make it hard for your business to grow. As your business becomes more established, you need to set standards for record-keeping and reporting. That makes it easy for banks, other businesses, and clients to trust you and your company.

Another mistake small businesses make is doing all of their accounting in-house. Outsourced accounting services can help you save money and see errors that you wouldn’t spot on your own. 

Hire a trusted accounting company like ours at A4E. We help SaaS and service-based companies with business growth services in Boston. Get in touch with us to learn more.

How the Paycheck Protection Flexibility Act can help forgive your PPP loans

June 12, 2020 in Accounting, Covid-19, Resources

On June 3rd, 2020, the senate passed the Paycheck Protection Flexibility Act (PPFA). The goal of this provision is to make it easier for small business owners to have their loans to be fully forgiven.

Here are brief summaries of the changes and how it impacts you and your business. For more detailed explanations, please see our previous article here.

✔️ Qualified uses: The PPFA lowers the expenditure threshold requirement from 75% to 60% of the PPP loans proceeds need to be used for payroll expenses.

✔️ Spend it within 24 weeks: Current PPP borrowers can choose to extend the covered period from 8 weeks to 24 weeks to spend its PPP funding. Any new PPP borrowers will have 24 weeks but not exceeding December 31 to spend the funding.

✔️ Payroll headcount and salaries level needs to be maintained: You are still required to maintain headcount and salaries level. But instead you have now until December 31 to do so. More information on what is the headcount level and salaries level to be maintained please see my previous article here.

✔️ Alternative ways to restore your headcount and salaries level: If you have found yourself 1) not able to re-hire or replace the skilled workers that you let-go; 2) workers voluntarily assign or request reduce of hours; 3) not able to restore your business operation to your Feb 15 Pre-COVID level, those loss of headcount will not be counted toward full time employee (FTE) reduction. 

✔️ Safe harbor rule for headcount and wage level reduction: If your FTE headcount and wage level between Feb 15 to April 26 is lower than the headcount and annualize wage level on Feb 15, and the headcount and annualized wage level on December 31 is greater or equal to your Feb 15 level, loan forgiveness will not need to be reduced. 

✔️ PPP loan term has been extended: If a portion of your loan is not able to be forgiven, the loan term is now 5 years instead of 2. This means you have more time to pay it off.

✔️ Payment deferral period: You have up to 10 months after your covered period to apply for the forgiveness process.  

✔️ Payroll tax deferral: Your business is now eligible to defer employer’s portion of the social security tax throughout 2020 and is no longer limited to only for the period up till loan forgiveness. 50% of the deferred social security tax can be paid by December 31 2021 and the remaining 50% in December 31 2022.  

It’s still highly important to keep track of your expenses that are being paid out of the PPP loans. We suggest using a separate bank account to house the PPP funding so a clear record can be shown when it is time to apply for your loan forgiveness.

Work with your payroll provider and accountant for your PPP forgiveness process and ensure your PPP loan amount can be fully forgiven.

If you need help or assistance, our team is always available. Stay safe and healthy.

How Can Proper Accounting Help Your Business Stay Afloat Amid the Pandemic?

June 10, 2020 in Accounting, Covid-19, Resources
Proper Accounting Amid Pandemic

It is always a challenge for small businesses to maintain healthy cash flow, but it is more of a struggle now that the global economy is starting to feel the effects of the Coronavirus pandemic. Businesses have seen their profits reduced drastically this year, and many people are bracing for recessions in various parts of the world.

Though we are in for some tough times, hope is not lost. You can keep your business afloat during the pandemic if you are careful about how you manage your books. Here are some accounting tips for small businesses who are riding out the storm.

Look for alternative sources of revenue

The pandemic has shown how adaptive humans are, and this is reflected in the ways we have tried to make our businesses cope. For example, some restaurants have started to offer options for takeout and home delivery. Others are even including do-it-yourself options; they are selling their raw stock at a reduced price, to keep the movement in their inventory.

This does not have to be limited to businesses in the food and beverage industries. Partnering with local moving companies will help retail businesses reach their customers even with physical distancing restrictions. 

Furthermore, you can look into securing credit lines with your providers. If you have excellent standing, you have a good chance of getting a loan from your bank. Since many lending institutions are dropping their interest rates to historically low levels, take advantage of it, and generate more liquid income for your business.

See how you can cut costs

Put capital spending plans on hold, reduce the number of stocks on your next order, or see if you can return stocks that you have not sold. Bookkeeping should be your priority at the moment and not expansion.

Talk to your vendors and see if you can make arrangements that accommodate both of your needs at the time. In all likelihood, they are also economically affected by the pandemic, and would rather have some money rather than none.

Shift production to other markets

If you’re running a business even slightly aligned with people’s needs today, you can temporarily shift your operations to producing essential supplies. For example, a clothing company can produce protective equipment for both medical workers and people who must leave their homes. Fragrance companies can make medical-grade alcohol. Look at ways you can convert production and go for these.

Take care of your employees

Treat layoffs as the last resort. For your company to be productive, you need manpower. If you start letting people go, this will reduce your capacity for work. Furthermore, the people left behind will probably grow anxious and demoralized from seeing their fellow employees leave. Talk to your employees about making adjustments while there are severe restrictions.

Your employees might be amenable to working for fewer hours, or for reduced pay, so you can keep the business open during this time. You can also turn to loyal customers; perhaps they could come up with a system for tipping the staff or taking care of their immediate concerns like medicines, baby formula, or groceries.

Look outward for help

See if there are competitors whose inventory is up for sale. If similar businesses are closing up shop in your area, you can buy their products to add to your stocks. You can also start seeking out clients from whom you have accounts receivable; they’ll surely understand why you’re giving them reminders about their bills!

Another avenue is through government aid and relief. See if your business qualifies for low-interest-rate loans, or if your state or county has special concessions for businesses owned and operated by locals.


Getting through tough economic times is manageable if you explore all your options. You can stay afloat during the pandemic if you have a good gameplan; an accountant can help you identify what you should prioritize and what you must forego at this time.

Partner with us at A4E for top-quality accounting services in Boston. Our bookkeeping, taxes, and CFO services will take the stress off your shoulders!

How an Accountant Can Help You Grow & Scale Your Business

June 3, 2020 in Accounting, Business Formation, Resources

Looking to make your small, self-owned business grow? One of the best things you can do is to hire an accountant who can guide you through the major financial decisions involved in doing so. There are arguably quite a few involved, and each one is important and will play a vital role in the future of your business.

In this article, we’ll give you a basic overview of what to expect and the ways that a certified accountant can guide your next steps.

Moving Forward as a Small Business

Before we proceed, we’d like to give you an idea of what you can expect moving forward.

Depending on how your business is set up currently, you have several routes you can take to effectively scale up your operation. For entrepreneurs (i.e. self-employed individuals), the most common options that many people go for are a) transitioning to a sole proprietorship, and b) registering as an LLC (limited liability company).

Both options have their pros and cons. From a financial standpoint, some of the key differences between the two include:

  • Sole proprietorships require minimal paperwork to set up and maintain. LLCs, on the other hand, have much more stringent requirements.
  • An entrepreneur with a sole proprietorship exposes themself to business liabilities that can put their personal assets at risk. LLCs effectively minimize this risk by providing protection from commercial lawsuits, debt, and similar threats.
  • Sole proprietorships are subject to fewer taxes than LLCs. The processes involved in filing taxes as a sole proprietor are also simpler. However, when an LLC grows in scale (e.g. hires more employees), the potential tax savings could surpass those of sole proprietorships.

There are other key differences as well. What’s important to know is that each one is a viable choice, but the right one for your business will depend on many different factors.

How an Accountant Can Help

As you can see, knowing which path to go on is already a complex decision. The applicable concepts and pertinent laws can be understandably confusing, especially if you’re a small business owner who has so far only been involved in their own finances.

This is where the help of a certified accountant can be immensely helpful. They’ll be able to simplify the many concepts involved such as asset protection and taxes for entrepreneurs. With their aid, you’ll be able to make better decisions as you’ll have a better grasp of the relevant subject matter.

In addition to this, an accountant can help you acquire and submit all the documents that are needed in scaling up your business. They’ll be able to facilitate the process of setting up your sole proprietorship or LLC—depending on your choice—and continue to provide their services for all future requirements.


Hiring an accountant, when everything’s said and done, is simply the smart thing to do. Small business owners often struggle to scale up because they lack the resources and knowledge to do so in the first place.

When you hire an accountant to share the burden, you give your business the chance to grow while also providing yourself the time and energy you need to focus on other aspects of your operation.

We provide accounting services for entrepreneurs in Boston, and we’d be happy to help you take your business to the next level. Send us a message to find out more!

Ways to Pull Your Business Through Uncertain Times – Our Guide

May 29, 2020 in Accounting, Covid-19, Resources

As we continue to wait for pandemic curves to flatten, businesses all over the world are feeling the pressure of forced shutdowns. Many are scrambling to reassess finances and keep operations running for an indefinite period of time. As uncertainties become unprecedented, here are a few key areas to shift your focus to in order to help your business survive.

1. Redirect Your Focus

If your focus has been on how to increase sales and revenues or improve efficiencies and profitability, now is the time to work with an accounting service to zero in on your balance sheet. Keep an eye on your working capital and start forecasting your cash flow with an accountant. This can help keep your finances predictable for the next 30 to 60 days.

2. Work on Receivables and Payables Management

To avoid any unforeseen financial disasters, tighten up on your receivables. Start working on halted collections and offer discounts for early payments and even long-overdue payments. Stretch out AP payments for as long as possible without damaging your relationship with key suppliers. Review your customer credit risk to prepare for the impact of the pandemic over the long run. Identify those who may be at risk and begin limiting their credit.

3. Take Note of Your Inventory

An inevitable drop in demand will result in inventory levels that may be too high for your business to manage. If such is the case, you’re going to want to reassess your safety stock levels and lower ones you can afford to lose without hindering customer demand. Consider low or negative margin sales and how you might be able to convert excess inventory into cash.

4. Negotiate Your Supply Line

It’s likely that your suppliers are sitting on excess inventory just like you are. Use this as an opportunity to negotiate lower prices in order to increase your leverage.

5. Reduce Discretionary Costs

While most of your focus will remain on your balance sheet, it may also be time to cut costs. Immediate cash flow opportunities might include reducing your 401k Plan to zero or whether you can pay the match at the end of the year instead of during your pay periods. You can consider leasing larger purchases that you can’t defer rather than buying altogether. Try to obtain COVID-19 tax credits and cash flow savings related to deferrals to obtain payroll savings.

6. Assess Your Financing

If you haven’t yet teamed up with any bookkeeping services, you probably should. You’ll want to consider drawing down on your line of credit while it remains available and assess how significant your cash flow situation is. You might have to look at recapitalization opportunities such as taking advantage of SBA lending or economic injury disaster loans.

7. Prepare for the Rebound

Though today holds significant uncertainty, major financial institutions predict a large bounce back in GDP by the third quarter of 2020. Remember that while it may be your business’ main goal to survive, it is also to take part in the eventual upswing. This means remembering to prioritize your supplier and customer relationships and, most importantly, your employees.


Trying to keep your business from going underwater may seem nearly impossible in the middle of a pandemic. But with the right business growth services, such as ours at A4E, we can take the stress of bookkeeping and other finances off your shoulders and into our own hands.

If you’re looking for effective business growth services in Boston, MA, we’ll be sure to take note of your pain points and provide you with exactly what you need.

Why You Shouldn’t Procrastinate Your Tax Filing in 2020

May 21, 2020 in Accounting, Resources, Taxes

You may have months left to file your taxes, but processing them as soon as you can leave your feeling relaxed and far from bouts of headaches. You’ll be saving more than just your head, however, as the sooner you file, the sooner you’ll know if you have any money returning. You’ll also be protecting your business from any fraud.

If you’re not convinced and would rather wait for the tax season, consider how filing your taxes early can help protect your company and your investment. Here are several tips why you shouldn’t procrastinate tax filing, taken from the experts.

Reason #1: You’ll reduce the risk of exposure to tax-related identity theft

Just over a month into the 2019 tax season, the IRS identified more than 3,500 tax returns that claim a total of $15.8 million in fraudulent refunds. The statistics show the agencies the IRS managed to catch, but unfortunately, plenty of them remain rampant. These identity thieves use Social Security numbers (SSN), which they steal to file fraudulent tax returns and get a refund from the government. Tax season is a gold mine for identity theft, as millions of SSN just float about. If you wish to protect yourself and your company from these threats, file your taxes during the low season!

Reason #2: If you’re getting money back, why not get it early?

Most taxpayers get a refund and out of 155.9 million tax returns filed in 2019, 111.8 million qualified for a refund. If you file your taxes earlier, you’ll be able to get the money back sooner. Why is this crucial? As a business owner, this means three more months of investing, which allows that money to gain value and returns. It could also mean paying debts three months earlier, which cuts down interest rates that would have led to more costs. While it may not seem like much in hindsight, three months of every single year is a lot for business growth.

Reason #3: The IRS will favor you more

While plenty express contempt for the IRS (Who likes taxes, anyway?), it’s one of the most underappreciated agencies in the government. Contrary to what the public regards them as, the people behind the IRS work with all taxpayers, especially those struggling with their bills. There are structured payment plans available, usually offered with generous terms and grace periods. IRS loves helping you pay your taxes, but filing those taxes is another story. Taxes for entrepreneurs is an incredibly complicated process, and the people behind the agency will not be able to help you during a hectic tax season. If you wish to ask them for help, do so in February and March!


It might seem reasonable to just go ahead and file your taxes when it’s due. Never overlook the stress and pressure tax season can bring, however, as the last-minute stress is real. You’ll do well to wrap your taxes in advance, as you’ll be saving plenty of time.

You’ll also be able to protect yourself from identity theft, get your money back early, and become friendly with the IRS. For business owners, hiring a tax service may be the best option. This could mean saving so much more, as taxes tend to be much more intricate when it comes to businesses.

We offer the best accountants for entrepreneurs in Boston, as we focus specifically on businesses like yours! Let us take the stresses of taxes and bookkeeping away from your shoulders.

A Condensed Guide on the CARES Act for SMEs

May 15, 2020 in Accounting, Covid-19, Resources

Given the current pandemic, social distancing measures and quarantine lockdowns are in order. To risk the further spread of infection, consumers are forced to stay at home, while nonessential businesses are ordered to temporarily close down. Businesses falling under commerce are not considered essential services, so the closure of these operations have the potential to affect small businesses negatively in terms of finance.

You may be one of the small business owners worrying about the state of not only your lack of resources but your employees’ payroll. Fortunately, the newly passed CARES Act offers several benefits for you, as well as your employees during the coronavirus pandemic.

What is the CARES Act?

The CARES Act, which stands for Coronavirus Aid, Relief, and Economic Security Act, is a stimulus package designed specifically for individuals and businesses directly affected by the pandemic, which serves as an economic relief. $2 trillion is allocated to those covered by the Act, and $377 billion of the funds will go to small business owners with 500 or fewer employees.

What benefits does the CARES Act offer small businesses?

From the $2 trillion budget, the CARES Act provides $10 billion for Emergency Economic Injury Grants. This grant can be as much as $10,000 for each small business owner, which is enough to cover operating costs.

The Small Business Debt Relief Program is also offered, where $17 billion is available for six months of payments to help small business owners pay current non-disaster Small Business Administration loans.

Here are more benefits that small businesses can receive through the program:

  • The Paycheck Protection Program: This allows small businesses with existing loans to pay up to eight weeks of employee payroll services costs, which includes all benefits. The funds for this program can also be used to pay interests, specifically on rent, utilities, and mortgage payments.
  • Employee Retention Credit: Launched by the Treasury Department and the Internal Revenue Service, this program allows small businesses to keep their employees on their payroll. At a time where the unemployment rate is high, the program seeks to stop the further increase.
  • Expanded Unemployment Insurance: On top of what state unemployment programs pay, the unemployment insurance has been expanded by 13 weeks. This also includes a four-month $600 benefits enchantments. This program covers freelancers, gig workers (Uber drivers), and even furloughed employees.

What does the CARES Act offer employees?

The most beneficial program offered by CARES act is the expanded unemployment insurance. Originally only running from 26 weeks, it has now been expanded to 39 weeks. An additional $600 payment will be added on top of the weekly benefit amount eligible employees receive. Moreover, Americans will also be able to receive one-time stimulus checks of $1,200 per adult and $500 per child.

How do small business owners apply for the CARES Act benefits?

Eligible small business owners can apply for the CARES Act through the Paycheck Prevention Program, which was launched last April 3. Any application shall undergo through an existing Small Business Administration, which can be the following:

  • A federally insured depository institution
  • A federally insured credit union
  • Farm Credit System institution

For more information on loans and grants applications for the CARES Act, visit the Small Business Administration’s portal here.

What this means for small businesses

It is difficult to navigate through the new normal—your business may be suffering unimaginable losses, and you may be juggling all possible ways to support your employees through a difficult time. Although the end remains to be seen, getting help is still possible. Through the CARES Act, your small business may just see the pandemic through!

If you’re looking for accounting services in Boston, MA, our CPA-qualified accountants and financial experts are ready to help. Contact us today to learn more about our bookkeeping, taxes and CFO services!

I received my PPP. Now what?

May 15, 2020 in Accounting, Covid-19, Resources

Now that you have received your PPP loans as a business owner, I can see the relief in your face. But the big question now is what do I need to do to ensure the loan amount is forgivable?

The PPP has come out with a set of guidelines on what a small business has to do in order to get the loan amount forgiven. Here are our suggestions on how to stay compliant with those rules.


1) Qualified uses: At least 75% of your PPP loans need to be used for payroll expenses (independent contractor’s pay does not count towards payroll expenses). The remaining amount of the loan can be used for mortgage interest, rent, and utilities. [New Paycheck Protection Flexibility Act has changed the % from 75% to 60%]

2) Spend it within 8 weeks: From the time the loan was issued, please keep in mind that your loan amount is based on 2.5 months of your payroll expenses, which is 10 weeks’ worth of payroll. However, you only have 8 weeks to spend it in order for your loan to be forgiven. If you need to adjust your payroll timing or headcount to pay out the whole PPP loan within 8 weeks, do so. Any loan amount not used for the qualified purposes will not be forgiven. [New Paycheck Protection Flexibility Act has increased the period from 8 to 24 weeks]

3) Payroll headcount needs to be maintained: Compare the average number of full time employees for the 8 weeks following the loan disbursement with 1) employee headcount from Jan 1, 2020 to Feb 29, 2020 or 2) headcount from Feb 15, 2019 to June 30, 2019 [Now December 31, 2020]. Ensure that the headcount for the 8 weeks [now 24 weeks] following the loan disbursement is equal to or larger than either of the comparison periods.

Exemption: Many employers are complaining that their headcount levels cannot be maintained due to employee refusal to return to work. There is an exemption of this headcount rule if the employer can provide either of the following:

  • A written re-hire offer with the same rate of pay and number of hours before the employees were laid off and.
  • A rejection to the offer from the employee.

Employees who refuse offers will no longer be able to continue with the unemployment benefits.

4) Payroll amount needs to be at least 75% from the most recent quarter: Before the 8 week [now 24 weeks] loan period is complete, with the exception of any employees who receive more than $100,000 in salaries in 2019. Any reduction in pay lower than the 75% level will reduce the forgivable portion of the loan by the difference between the employee’s current pay and 75% of the original pay.

If you have previously laid off or furloughed any employees or reduced their original pay by more than 25%, you are able to reinstate their pay and rehire them before June 30, 2020. [Now December 31, 2020]

5) Documentation and books need to be maintained: Lenders will ask you to provide the following documents. You need to have these ready:

  • Form 941
  • Payroll records
  • Other health insurance and retirement contribution documents to support your claim.

6) Currently, the forgivable loan is not taxable and expenses used under the forgivable portion of the loan is therefore not tax deductible to prevent double dipping. This means your expenses need to be clearly labeled in your books and to identify the expenses being paid by the PPP Loans. Also, we recommend business owners to house their PPP loans in a separate bank account so any expenses paid out of PPP loans are traceable and easily trackable. This will be very helpful when it comes time to file your 2020 tax returns and provide proof of your expenses.

7) For self-employed (Sch. C) business owners, it’s even more important to maintain good record keeping of your books and documents to prove that you have met the PPP loan forgivable guidelines. This ensures funds are used appropriately.

8) The amount of forgivable loans for self employed individuals on owner’s compensation replacement is calculated based on your 2019 Sch. C net profit multiplied by 8/52 weeks. Any remaining amount will need to be used for mortgage interest, rent payments, and utilities.

9) For new businesses in 2020 that were not in existence in 2019 but were in business before Feb 15, 2020, there has not been clear guidelines from the SBA on how to calculate the owner’s compensation replacement yet. We will keep you updated.

10) File your 2019 tax returns and apply for forgiveness with your lenders. Deadline for the 2019 federal tax return has been extended. If you have already submitted your Sch. C to your lenders, you might want to file the tax return but delay the payment until July 15. You will also need to apply for forgiveness with your lenders after your 8 week [now 24 week] period.

11) Some payroll credits are not allowed if you have a PPP loan. This is to prevent double dipping since the forgivable portion of the PPP loan is not taxable. So if you have a PPP loan, you will not be qualified for the Payroll Reduction Credit. For more information on what other credits and benefits your business is eligible for, please check out our article here.

If you’re looking for help filing your tax returns (including back tax filings), bookkeeping for your business, or catch-up bookkeeping services, please feel free to contact us. We want to ensure your books are clean, your taxes are up to date, and your PPP loans are forgiven.