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Cash Flow Strategies and COVID-19 Assistance

2020-06-25


This article was originally published in the Summer 2020 issue of Truck Logger BC Magazine. It has been reproduced with permission.

In an article written for Truck Logger BC Magazine, MNP’s Chris Duncan, CPA, CA, discussed steps forestry businesses can take to navigate the ongoing COVID-19 crisis and the government programs available to manage the financial challenges.

Business Matters: Cash Flow Strategies and COVID-19 Assistance

The forest industry, like many others, is having to balance the safety of employees and their families with the struggle of maintaining a business through the COVID-19 pandemic. From reducing on-site teams to curtailing processing operations and holding virtual meetings, the industry has evolved to meet the new reality.

However, external pressures continue. Timber and lumber export markets hit hard by COVID-19 have slowed to a trickle and new harvest plans are delayed due to the slow down in the supply chain. Financial institutions are bracing for a rise in defaults and many suggest lending rates may increase as a result of COVID-19.

Now is the time to adjust your business strategies to meet your customer needs, keep your employees safe and help preserve your business. The following actions and programs can help position you to emerge and recover from this crisis.

Stretch Cash Flow

A full understanding of your cash flow situation is critical to determine your business’ funding needs.

Reassess your vendor and customer engagement strategies to identify which customers and vendors are critical accounts. Create specific procedures to deal with strategic versus non-strategic partners and optimize payment schedules.

Given income and profitability are projected to be significantly lower than 2019, consult with your tax advisors on the need to pay corporate income tax instalments for the balance of the year to further free up cash flow. The federal government has announced several programs allowing payment deferrals of corporate income taxes, corporate income tax instalments and GST / HST payments.

These deferral mechanisms may help with resolving your temporary cash flow needs. However, be aware the debt is still owed at the end of the day.

The Business Development Bank of Canada (BDC) and Export Development Canada (EDC) have also launched new small- and medium-sized enterprise loan and guarantee programs that will provide up to $40 billion in additional lending. The programs are as follows:

  • Canada Emergency Business Account (CEBA) guarantees interest-free loans up to $40,000 for small businesses to help cover operating costs during a period of temporarily reduced revenues. Businesses need to demonstrate they paid between $20,000 and $1.5 million in total payroll in 2019 to be eligible. Up to 25 percent of the loan may be forgiven, to a maximum of $10,000 if the loan is repaid by December 31, 2022. CEBA applications are made through financial institutions.
  • A new program partners the BDC with financial institutions to co-lend term loans to small- and medium-sized businesses for their operational cash flow requirements. Eligible businesses may obtain incremental credit amounts up to $6.25 million, with the BDC providing 80 percent and the financial institution providing the remaining 20 percent.
  • EDC will provide guarantees to financial institutions issuing new operating credit and cash flow term loans of up to $6.25 million to small- and medium-sized businesses to support Canadian businesses through the COVID-19 crisis. These loans will be 80-percent guaranteed by EDC and are to be repaid within one year.

Preserve Your Workforce

Focus on profitability and revenue targets and consider alternative ways to optimize performance in the short term — including reassessing your labour requirements and staffing levels.

The following federal programs provide emergency aid to businesses and may help retain your workforce; make sure to meet their deadlines to qualify:

  • Canada Emergency Wage Subsidy (CEWS) provides eligible entities with a 75 percent employee wage subsidy for a 12-week period, from March 15 to August 29.
    • Payable on the first $58,700 normally earned by an eligible employee, representing a benefit of up to $847 per week.
    • Employers of all sizes and sectors are eligible, except public sector entities.
    • Eligible entities must demonstrate a decline in revenues of at least 15 percent in March and 30 percent in April or May 2020 compared to the same month in 2019.
      • Alternatively, employers may compare revenue using an average of revenue earned in January and February 2020, provided they had a payroll number on March 15, 2020.
    • Eligible entities can elect to calculate revenue using either the accrual or cash methods — however, they must use the same method for all periods.
    • An eligible employee is an individual employed in Canada by an eligible entity who has not been without remuneration for 14 or more consecutive days in the qualifying period.
    • Eligible employers may access the CEWS by applying online through the Canada Revenue Agency (CRA) My Business Account or the new application portal. Entities may also have their accountant apply on their behalf through the CRA Represent a Client.
    • The deadline to apply for the CEWS is September 30, 2020.  See your accountant for assistance in the application process.
  • The Temporary Wage Subsidy for Employers is also available to businesses. However, any benefits under this program will reduce claim eligibility under the CEWS. This subsidy is equal to 10 percent of remuneration paid from March 18 to June 20, 2020 up to a maximum of $1,375 per employee and $25,000 per employer.

In addition, contractors who must temporarily lay-off staff due to the economic impacts of COVID-19 may refer their employees to other programs for financial assistance.

The Canada Emergency Response Benefit (CERB) temporarily supports individuals who have stopped working due to reasons related to COVID-19. It provides $500 per week for a maximum of 16 weeks. Applications can be made through the CRA, online or by telephone. CERB payments will be included in the recipient’s taxable income.

During good times and challenging times, successful businesses depend on good teams. Contact your MNP Business Advisor for more information and strategies to keep your business moving forward.

For more information, contact Chris Duncan, CPA, CA, National Leader, Forestry and Forest Products, at 250.748.3761 or [email protected]