If you’re like many business executives, you may have already received your PPP funding and are working to prepare for the rest of this year. However, most of us are working to create financial forecasts with data that is wildly outside of the norm. If you’re overwhelmed trying to prepare for your company’s financial future, Junction Peak can work with you to forecast for a future after the PPP runs out.
Learn how new changes from Congress may impact your PPP spending, why economists are anticipating a recession, and what you can do to prepare. Guiding your business through a time of economic crisis can be overwhelming, but we’re here to make sure you come out on top.
How To Prepare For An Impending Recession When PPP Funds Run Out
How has the PPP changed?
The Senate passed a bill on June 3rd that would give small businesses more flexibility with their PPP loan funds. This bill included some changes and clarifications that will impact your forecasts and how you use your PPP funds.
Here are the major takeaways:
- The time you have to use your PPP funds has extended from 8 weeks to 24 weeks.
- This new bill reduces the amount that needs to be spent on payroll from 75% to 60%.
- The deadline to apply for a PPP loan remains June 30.
These changes are good news for small businesses. The extended spending timeline gives you a smoother path to qualifying for loan forgiveness. Furthermore, reducing the amount that needs to be spent on payroll will help with other expenses like rent, especially for companies in areas with high real estate prices.
Will the economic downturn get worse?
To put it bluntly, it would be wise to prepare yourself for a recession. Many economists are anticipating one, if not already declaring the current downturn a recession.
A study released in January 2020 examined data from 1916 to 2019 and had uncovered a 70% chance of a recession in the following six months. Since then, the coronavirus outbreak and resulting downturn only made this all the more likely.
That said, while a recession looks probable, it is important to note that forecasting a recession has become even tricker than normal. One key indicator of a recession is the unemployment rate. The week of March 14th unemployment claims rose to 281,000. Two weeks later, that number was 6.9 million. Many economic models are linear and ideal for small deviations. Quite simply, current models aren’t built for the world we’re in today.
Despite this uncertainty, the choppy waters we’re in now mean a recession is likely, and it’s always best to be prepared.
How do I prepare for a recession?
Thanks to the Senate’s timeline extension for PPP loan spending to December 31st, you will have a bit more breathing room when forecasting the rest of your year.
That said, it’s important to start thinking about January 1st, 2021 right now. How will you prepare for when PPP funds run out, and an impending recession? And what can you do about the expenses that may not be forgiven under the terms of your PPP loan?
First, know that you’re not helpless. There’s a lot you can do now to prepare your company for a recession. Here are a few key steps you can take now:
- Be diligent about your cash flow. You should be creating monthly forecasts so that you can ensure your expenses and planned expenditures line up with accounts receivable.
- Carefully evaluate your capital spending. Expansion plans and the purchase of high ticket items can take time to pay off, so it may be best to delay those plans if possible.
- Look at other funding options. Evaluating your other options is crucial to make sure you’ll have financing when the PPP runs out. Small business loans, lines of credit, and grants can all be helpful.
Forecasting for a future where PPP funds are no longer available can be overwhelming, especially while working to prepare for a recession. By staying abreast of current news impacting the PPP and other financing options, and creating detailed monthly financial forecasts, you can ensure you’re prepared for economic uncertainty.
Junction Peak’s financial team can work with you to create detailed forecasts and models and will meet with you monthly to work with you as you guide your business towards better cash flow. Reach out to talk about our financial services.