April 6, 2020: On Monday, longtime studio owner Misty Lown held a virtual town hall, co-hosted by Dance Teacher and Dance Business Weekly. She started off with some good news: In survey results from that morning, studio owners were reporting an average enrollment retention rate of 85 percent, with 71 percent retention in revenues. Why the gap? “From all my discussions with studio owners,” said Lown, “I’m hearing that many are putting compassionate decision-making in place and doing what they can for families, in their own version of a stimulus package.” Lown also shared some inspired (and inspiring) examples of how studios are adapting and coping.
The Nitty-Gritty of the Programs
Most of the town hall was focused, though, on taking a deep dive into the federal programs that were part of the stimulus package for small businesses that became law on March 27. Studio owners came with burning questions. And by the end of the session, thanks to special guest Mary Jo Werner, an attorney and CPA who’s a member of the IRS Advisory Committee (IRSAC), it felt as if each of us had just had a personal meeting with a high-level CPA.
Werner went into the nitty-gritty of the two main loan programs—the Paycheck Protection Program (PPP), which is a forgivable loan, and the Economic Injury Disaster Loan (EIDL)—right down to how to answer specific questions on the PPP application form and the formula to use for calculating the payroll figure required. To catch all those details, you’ll want to listen to the recorded town hall meeting. Here are six takeaways we think you’ll find useful for navigating your way through the rescue package.
You can apply for both the EIDL and the PPP, just not to cover the same expenses—no double-dipping, in other words. If you’re having trouble finding a bank that will process your PPP application, or your own bank is delayed in opening applications, apply for the EIDL first, which is done online directly through the SBA. (The surge of applications is causing bottlenecks everywhere; patience and persistence are required.)
Know who counts as payroll for the purposes of the PPP: It’s only employees who get W-2s. If you have staff to whom you send a 1099 form at tax time, these can’t be counted on your own application. (As independent contractors, your freelance dance teachers, choreographers and so on can file for their own PPP forgivable loans. Applications open on April 10 for self-employed workers and independent contractors).
A registered agent can make the PPP loan application for you, if you’re more comfortable with that. This is a third party (a CPA or attorney, for instance) who has permission to represent you. Fees to registered agents will be paid by the lender (the SBA), according to a set schedule.
Set up a separate bank account for the funds you receive through these programs. For one thing, to have a loan forgiven under PPP, you have to prove that you spent the money on eligible payroll (75 percent) or overhead expenses (25 percent) for a specific eight-week period. Having a separate bank account makes that easy to track.
Don’t get fixated solely on these two loans. The stimulus package offers other ways to help you and your staff. When the President declared a National Emergency, for instance, that triggered tax-free disaster relief benefits for employees that are 100 percent deductible for employers, “allowing you to make their life just a little bit easier,” as Lown pointed out. You can use this benefit to cover everything from the costs of setting up a home office, unreimbursed medical expenses, or the increased costs of staying home (utilities or food reserves). Just make sure it doesn’t get categorized under payroll, Werner advised. If you use QuickBooks, for instance, and you’re reimbursing someone for food reserves, list it as an employee benefit, or it will count as wages and be subject to payroll taxes and withholding.
For reliable, up-to-the-minute information, consult your CPA or financial advisor. These are big complicated programs, with many moving parts. Last-minute rules changes were still being made the night before the PPP launch, and they will continue to be made as the fine points are ironed out and banks themselves get organized. Don’t rely on what you Google for the finer details. Your advisor will understand more of the nuances in these evolving situations.
For recaps of earlier studio town halls, read “COVID-19 Update: Action Dance Studio Owners Can Take Now” and “This Is The Way Forward.”