COVID-19 is challenging business owners in ways they’ve never experienced before. Owners are nervous, many are hurting financially and, even worse, years of hard work and growth may be compromised by something beyond their control. Yet, now’s not the time to give up. If anything, owners can use this time to create new plans, think of creative revenue-generating ideas and start preparing for a post-COVID-19 world, so they’re ready when the economy starts to ramp up again.
“For certain companies, business is negligible right now,” says Jeff Halpern, a Business Succession Advisor with TD Wealth. “The question to ask yourself, though, is what can you be doing? It’s an important time to think about business strategy.”
Before you can plan ahead, you’ll need to make sure you have enough money to keep your doors open (if not physically, at least conceptually) and staff working, despite having a prolonged period of lower or even no revenues. So what can you do to protect your finances so that you stay afloat until this passes? Here are five ideas.
1. Consider wage subsidies
The government has introduced a number of programs that may help companies stay solvent, but the main one is the Canada Emergency Wage Subsidy1, which provides 75% of an employee’s salary up to $58,700. If eligible, applicants could receive a maximum subsidy of $847 per week per employee. The goal is to keep people on payroll or for companies to bring laid-off employees back to work. “My message to Canada’s employers is this: Get ready to rehire,” said Bill Morneau, Canada’s finance minister, in a press conference on March 30.
2. Consider borrowing
Borrowing has long been an important financial tool in the entrepreneur’s toolbox, and loans, which can be used to reduce higher-interest debt or to pay suppliers, may certainly be worth considering now. With the Bank of Canada slashing interest rates to 0.25% from 1.75% in March, you may be able to borrow money via a line of credit or a small business loan. As well, you may be able to apply, through your bank, for the government’s Canada Emergency Account for Business2, which provides eligible companies with an interest-free loan of up to $40,000. More information on these programs is available through the Government of Canada website.
3. Consider whether you can make a business interruption insurance claim
If your company has business interruption insurance, it may provide coverage for the loss of income that your business suffers due to a covered disaster. Proceeds from an approved claim could go a long way to keeping your business afloat. However, review your policy carefully as most policies don’t include pandemic coverage and often specifically exclude it.
4. Keep money in the corporation
If your business is incorporated, you can try and keep as much inside the business as you can. Why? Because for many small businesses, income earned inside a corporation is subject to the small business deduction and may therefore often be taxed at a lower rate than individual income — depending on your particular circumstances and your personal tax bracket. If you need money to live on, taking funds out of the corporation as a dividend may also be potentially more tax efficient than drawing a salary. Get the advice of a tax expert to determine whether this is true in your particular circumstances.
Also remember that if you do have business losses in 2020, you may be able to offset these losses against income earned in the previous three years, or, potentially, against income earned in future years. The Canadian government is also allowing people and companies to pay their 2019 taxes later than usual (see the CRA website for deadlines), which means you can keep some cash on hand for longer. Be careful about spending your tax money, as you will eventually still have to pay it.
5. Work with business partners
Everyone is dealing with the same issues right now, so consider asking your landlord for a rent deferral or talking to suppliers to see if you can temporarily adjust their payment terms. Reach out to your banker to see what loans or other funding you can apply for, and on the personal side, many mortgage lenders are allowing clients to defer payments for six months, which could help you keep more cash inside the corporation. You can find information on some relief options here.
Whatever happens, remember that you’re not alone. “There are a lot of great professionals and other business owners, who may be in a similar position, who can be used as resources,” notes Halpern. “Work with them on a plan to get through this. We’re in this with you.”
- Canada Emergency Wage Subsidy. April 1, 2020. https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html Accessed on April 7, 2020 ↩
- Canada’s COVID-19 Economic Response Plan. April 6, 2020. https://www.canada.ca/en/department-finance/economic-response-plan.html. Accessed on April 7, 2020 ↩