22 MiMfg Magazine October 2020
Premium Associate Member
Financial Tips for Managing the Ongoing COVID-19 Fallout
By Jim Biehl • Clayton & McKervey
COVID-19 has had a significant impact on Michigan manufacturing , forcing many to shift strategies to cope under crisis . The combination of supply chain issues , workforce concerns and reduction in orders created a “ perfect storm .” Fortunately , many manufacturers are surviving the initial challenges through lines of credit , low interest loans and government programs such as the Paycheck Protection Program and Economic Injury Disaster Loans .
The pandemic caught many manufacturers offguard resulting in trying circumstances . The best way to ensure resources are protected is to develop a comprehensive plan for the next 12 to 18 months .
• Cash Flow Planning : Create a 13-week cash flow model to provide insights into the assets , debts , expenses and income over the planning period . The model should be detailed and regularly updated to help management make timely and necessary decisions . It should clearly communicate the financial situation to all stakeholders .
• Receivables & Payables : It is essential to manage customer collections and vendor payments with the goal of reducing the time to get paid while increasing the time to pay vendors . Ideas include modifying invoice payment terms or offering payment plans or discounts for upfront cash payments . Prioritize critical vendors when making payments .
• Inventory Management : Avoid carrying nonessential inventory by taking time to extract data and analyze inventory to identify where changes can be made . Converting unused inventory into cash could be key to long-term survival .
• Liquidate Idle Assets : You may have untapped equity in assets not utilized , underutilized or ineffective in financing due to reduced advance rates . Review is recommended to realize additional sources of cash liquidity .
• Leasing vs . Buying : When contemplating the purchase of new equipment or machinery , evaluate financing options . Rather than draining cash for purchases or upgrades , work with vendors to obtain the best financing possible to protect valuable assets and lessen the cash impact .
• Employer Payroll Tax Delay : For immediate savings , defer the employer portion of the Social Security Tax by the end of the year . Fifty percent of deferred taxes need to be repaid before 12 / 31 / 21 with the balance due 12 / 31 / 22 .
• Net Operating Loss Carrybacks : As part of the Coronavirus Aid , Relief , and Economic Security ( CARES ) Act , tax regulations were changed to allow realized losses in 2018 , 2019 , or 2020 to be carried back for five years . This allows businesses with a loss last year or in the prior year to apply the loss against income ; possibly leading to an immediate tax refund .
• Tax Estimates : Most profitable businesses default to 100 percent or 110 percent of prior year tax as a “ safe harbor ” from underpayment penalty and interest . It may be worthwhile to shift to the 90 percent of current year tax safe harbor method despite requiring detailed quarterly tax computations .
Looking forward , it is imperative to assess the company ’ s financial position and develop plans to facilitate recovery . 6
Jim Biehl is a Shareholder at Clayton & McKervey and leads the firm ’ s Manufacturing & Distribution practice . He may be reached at jbiehl @ claytonmckervey . com or 248-936-9409 .
Clayton & McKervey , P . C . is an MMA Premium Associate Member and has been an MMA member company since February 2018 . Visit online at claytonmckervey . com .
• Employer Retention Tax Credit : Take advantage of this credit rewarding businesses for retaining staff . The value is equal to 50 percent of wages paid to qualifying employees between 3 / 12 / 20 and year-end .