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Protect Your Business from Financial Fraud: COVID-19

It’s another day of the COVID-19 lockdown—day 11, 18, 43? You’ve lost count. You brew some coffee and pull out your phone, already wincing at what the day’s news might bring. But instead of headlines, the first thing you see is an email. It appears to be from Bank of America, offering you a $250,000 emergency business line of credit at 3.56%. All you have to do is complete a quick quote to get started.

You probably don’t need us to tell you this, but for the sake of your company’s future, do not click that link

As the 2020 coronavirus pandemic rages on we are experiencing more “stress in the system.” With a rush to work-at-home arrangement and cludged together systems its a ripe time for criminals to use the situation to their advantage. They prey on our collective fears and uncertainties to steal money, obtain sensitive information, sell bogus medical products, and sow chaos and confusion. While many scams target individual consumers, some of the most devious and destructive schemes are deployed against organizations. 

As a business owner, you need to be on the alert and hyper-wary of potential financial fraud. Thanks to the internet, it can happen to anyone and occur anywhere, at any time. And with billions of people stuck at home right now, cybercrime is perhaps more dangerous than ever.

It gets worse. The people we know are also under stress. And despite our best hopes, some times people do bad things when forced into difficult circumstances. Insider threats remain the number one area of concern – more on that below.

Here are just a few forms of COVID-19-related financial fraud to watch out for:

Remote Work Security Risks

Not all forms of financial fraud come from external sources. Intentionally or not, your employees could be exposing your business to significant financial risk. Their actions—and just as important, their inactions—can lead to theft, embezzlement, data breaches, and more.

Remote working arrangements can compound these risks. If your people aren’t using up-to-date software, haven’t been trained in cybersecurity fundamentals, rely on unsecure network connections, or don’t store and dispose of confidential information properly, you could be in trouble.  

Your business needs to have a cybersecurity policy and infrastructure in place, with sufficient governance to enforce it and monitor your employees. Security Magazine offers the following tips:

  1. Educate employees about phishing and test their awareness.
  2. Restrict remote workers to the use of company devices.
  3. Ensure workers use their home networks or other secure networks. 
  4. Limit people’s access to only what’s necessary for completing tasks. 
  5. Make remote work as easy as possible.
  6. Mobilize the IT department to proactively address threats and patch software often.
  7. Continually monitor traffic and look out for deviations and interruptions in regular patterns.
  8. Limit discussion about work to private channels.
  9. Make sure contractors and vendors follow the same rules employees do.
  10. Remember that security issues are usually due to human error.

Read “The Top 10 Employer Cybersecurity Concerns For Employees Regarding Remote Work.”

COVID-19 Phishing Emails

If someone is asking you to give your financial information via email, it’s almost certainly a scam. In fact, if anyone you don’t already know is contacting you via email, they’re likely after your money.

Don’t assume every sender is who they claim to be. Interpol warns of “emails claiming to be from national or global health authorities, with the aim of tricking victims to provide personal credentials or payment details, or to open an attachment containing malware.” Keep in mind that an authority such as the World Health Organization (WHO) or the Centers for Disease Control and Prevention (CDC) probably isn’t going to contact you via email.

Phishing messages often use fear and intimidation tactics to coerce their victims. For instance, a scam email may claim that your Social Security number has been “suspended” due to the coronavirus, or offer supposed “safety measures” in an attached PDF that contains malware or spyware. 

Scammers want you to think their requests are extremely urgent. Be smart and inspect the message carefully before taking any action. As Norton points out, phishing emails usually contain suspicious-looking links, typos, grammatical errors, generic addresses (“Dear sir…”), and odd turns of phrase (“in fight against corruption in the Banking system and in pursuit to re-build a good relationship with foreigners by the President of the United States of America”).

Do you know all the signs of a phishing email? Take Google’s quiz.

Government Relief Fraud and Other Business-Facing Scams

Businesses of all sizes are feeling the pain of the COVID-19 pandemic. Fortunately, there’s government relief available. Unfortunately, there are also bad actors trying to hijack the situation.

According to the Federal Trade Commission: “If someone calls or emails you out of the blue claiming there’s money available from a government agency if you just make an up-front payment or provide some personal information, it’s a phony.” The government won’t ask for your Social Security number or bank account number. Nor will any agency ask you to pay a fee before giving you money. The government definitely doesn’t need to get paid in gift cards.

The FTC points out a few more scams business owners should be careful to avoid during the coronavirus crisis:

  • business email scams—phishing attempts from people purporting to be company executives and using spoofed email addresses
  • IT scams—phishing attempts from people pretending to be technology staff or providers
  • supply scams—fake websites designed to look like genuine retailers’ sites
  • robocall scams—automated phone calls with unsolicited offers, false warnings, and inaccurate information

Fake Cures, Medical Products, and Testing Services

This category isn’t specific to business, of course, but it bears mentioning because it’s widespread and monumentally dangerous to public health and safety.

As of this writing, there is no known cure for COVID-19. Let me repeat: there is no cure for the coronavirus. No vaccine, no antiviral, no magic solution. 

Anyone who tries to sell you a pill, liquid, oil, vitamin regimen, or other product that allegedly cures or protects you against COVID-19 is a liar. At best, they’re a well-meaning kook; at worst, they’re a grifter. It’s classic snake oil salesmanship.

Beware of any untested or “alternative” treatment. It could kill you.

Also beware of any testing kit offers or pop-up coronavirus testing sites. Until tests are made more widely available in the US, any non-medical professional offering a test is probably a scammer.

Need help protecting your business during this challenging time? Talk to us. Quantive’s team of financial experts and virtual CFOs can equip you with the tools and information you need to ensure your business’s financial success—now, next month, and next year. Contact us.

How to Manage Cash Flow in a COVID-19 World

Does your business have enough to make it through the next month? 

How about the next six months?

As the world grapples with the COVID-19 (coronavirus) pandemic, organizations are operating on a long and uncertain timeline—and facing significant cash flow issues. The virus has shut down cities, upended supply chains, forced teams to go remote, brought travel to a halt, and diminished demand for everything but necessities—all of which has squeezed businesses’ resources and devastated their revenue-generating capacity.

Unless you stock or deliver food, produce hand sanitizer, or run a teleconferencing or streaming service, your company is likely in a cash crunch.

In an ideal world, this wouldn’t be a problem until summer or fall 2020, assuming—as some scientists predict—that COVID-19 will continue to disrupt our lives by then. Conventional business wisdom is that a company should have several months’ worth of cash reserves in the bank at all times. Some advisors go so far as to recommend maintaining 18 months of runway at minimum (which would neatly align with the timeline for an expected coronavirus vaccine).

But as business owners know, this advice is like “get at least seven hours of sleep per night” or “exercise for 30 minutes a day.” We know it’s what we should be doing, but we don’t—because, often, we can’t. For countless organizations—including many of the world’s biggest companies—ensuring liquidity for more than a few weeks feels unfeasible, if not impossible. And if you haven’t built up cash until now, a pandemic is a hell of a time to start. 

Fortunately, there are several ways to keep your business afloat during this difficult time. The key is to think strategically both in terms of accessing capital and modeling cash flow

Finding the Money: Take Advantage of All Your Options

If you’re strapped for operating capital right now, take solace in the fact that you’re not alone. Millions of businesses are dealing with the same challenges you’re facing. Your competitors, vendors, and partners have likely had to lay off workers, postpone or cancel major plans, and make other wrenching decisions—not to mention the personal tolls on owners and employees and their families. The coronavirus has hurt all of us, but we’re all in it together.

The massive scope of this crisis is in some ways advantageous to businesses, as it’s prompted the federal government to take action that benefits nearly everyone. In late March, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act), a historic aid package that injects $2 trillion into the US economy—including $349 billion for small businesses. Under the law, most companies and nonprofit organizations with fewer than 500 employees are eligible for up to $10 million each through 7(a) loans with the Small Business Administration. Interest rates are capped at 4%, and loans may be forgivable in many cases.

An SBA loan isn’t your only option, however. You can also consider one or more of the following:

Be sure to reach out to your financing sources. Talk to your bank or credit card issuer. Many lending institutions are waiving fees, offering assistance, reducing minimum payments, and temporarily suspending interest rates during the COVID-19 pandemic. There’s a good chance that your lender is willing to work with you to figure out a stopgap solution for your business.

Whether you can access financial relief or not, now is the time to think entrepreneurially and get creative. A shift in your business model or delivery model could bring much-needed cash to your accounts. Here’s how some companies are navigating the coronavirus crisis by changing how they do business.

Modeling Cash Flow to Make Better Short- and Long-Term Decisions

However you’re able to secure capital during these next few months, it’s essential that you retain full control of and visibility into your organization’s finances. 

For one, it might be a prerequisite for accessing cash. Your lenders may require you to verify your solvency and generate ongoing liquidity reports. 

But cash flow modeling is equally important for your own purposes of business management and decision-making. It shows you what you’ll need on hand week by week, month by month, so you can shift from pure crisis mode to longer-term planning. It could mean the difference between laying off an employee now and a month from now.

Cash flow analysis can help you decide…

  • what kind of remote work subscription software you can pay for, and for how long;
  • if you can afford to let a customer or client delay an invoice payment;
  • whether you need to take out another loan or line of credit;
  • if it’s time to sell off your equipment and excess stock, or if you can wait;
  • what kinds of marketing expenses and ad buys you can pay for and when;

…and much, much more. 

When you analyze your cash flow, you reveal opportunities to save money and spend smarter. As Matt Lew, senior manager at Deloitte told CFO Journal just a few months ago—before the coronavirus had spread beyond China—cash flow modeling “can enable agile decision-making that becomes a competitive advantage when opportunities may be available for only small windows of time.” 

Right now, for many businesses, the window of time has never been smaller.

Ask Us for Help

Unless you’re an experienced accountant, you probably didn’t get into business to model cash flow. The good news is that you don’t have to do it by yourself. At Quantive, we offer affordable, on-demand cash flow forecasting as part of our Fractional CFO services

Quantive’s CFO experts can help you effectively plan for the next few months so you can optimize your business performance during the COVID-19 pandemic—maximizing your revenue and minimizing your costs. 

In addition to cash flow forecasting, we also provide:

  • Payroll forecast and rationalization
  • Outsourced controller services
  • Spend analysis
  • Line of credit analysis
  • Debt financing / debt placement
  • Bookkeeping
  • Liquidity analysis
  • Budgeting
  • Development of best-in-class financial procedures 
  • Exit preparation

To learn more and get started ASAP, contact us.

Moving Your Accounting Offsite ASAP- and Fractionalizing It

COVID-19: How to Go Virtual and Move Your Business Accounting Offsite ASAP

Sixty-two percent. 

That’s how many businesses lacked an emergency plan as of September 2019, according to Ready.gov

Now, just a few months later, we know the real cost of unpreparedness. As the world wages war against the COVID-19 (coronavirus) pandemic, untold numbers of firms have been forced to make previously unthinkable decisions. Some have had to drastically reduce their workforces; others have had no choice but to close shop. 

If your business has survived the initial shock of COVID-19, you’re now almost certainly operating differently, on a semi- or fully remote basis. Like most of us, you’re running your company from home—managing a virtual workforce and communicating with customers entirely online. Maybe you’ve had to lay off a significant portion of your staff.

Whatever your business currently looks like, there’s one function you can’t afford to neglect right now: accounting. If you haven’t already, you need to bring your books into the virtual space as soon as possible. Any gaps in financial oversight and reporting will compound the impact of this crisis.

Fortunately, going virtual and switching to remote accounting doesn’t have to be complex, expensive, or painful. You probably didn’t prepare for this—but that’s okay. Here’s how to move your accounting offsite quickly and cost-effectively.

Communicate with Your Team

The first step in implementing virtual accounting is to develop a strategy. You can’t simply click a button and bring everything online. You’ll need to map out your existing systems and processes, evaluate your options, and consider any risks and uncertainties in going remote. In other words, you’ll need to determine what you know and what you don’t know.

Unless you’re a sole proprietor, there’s no reason to do this alone. Schedule a conference call or video meeting with your key financial employees, stakeholders, and advisors. Depending on the composition of your business, that could range from one or two individuals to a large team composed of your CFO, treasurer, controller, staff accountants, external financial consultants, and others. In any case, meet as soon as you can to gather everyone’s input and outline your plan together, then assign roles and coordinate priorities. 

Ensure every member of your team has the information they need. Bearing in mind the reality of the COVID-19 situation, it’s important to think both short-term and long-term, and to strike a balance between security, collaboration, and business continuity. For instance, you may need to house sensitive financial documents in a password-protected Dropbox folder, or appoint two or more people as administrators. Commit to transparency. Share your concerns with your team and encourage others to do the same. Now is the time for working together and taking all ideas into consideration.

Create a Checklist

Once you’ve assembled your team and developed an overall framework for moving accounting offsite, the next phase is to break your strategy into actionable steps. Think about what needs to be done and in what order: downloading software, digitizing documents, training employees, communicating the changes to customers/clients and vendors, and so on.

Take stock of the daily, weekly, and monthly tasks your bookkeeping and accounting departments handle: accounts payable, accounts receivable, preparing statements, reconciliation, revenue analysis, forecasting, budgeting, etc. If you have any workflow documentation, that will come in handy.

You’ll need to consider the full accounting cycle:

  1. transactions 
  2. journal entries
  3. posting to the general ledger
  4. trial balance
  5. worksheet
  6. adjusting entries
  7. financial statements
  8. closing

Next, determine both the importance and the relative difficulty of virtualizing each task. The goal is to get the basic things done first. Think about which tasks are most critical to your business—if any can be done remotely (or are already done remotely) with minimal effort, put those at the top of the list, followed by the equally essential but more difficult tasks, the easier and less important tasks, and finally the least important and most resource-intensive tasks.

Retrieve Any Necessary Physical Documents from Your Office

This is perhaps the least enjoyable part of this process. If you don’t have digital copies of all your financial documents, you or a member of your accounting team will need to travel to your place of business and bring them home. Do so quickly, keeping your paperwork secure in transit and at its final destination—and make sure to wash your hands as soon as you get back.

Use Technology—But Be Smart About It

If there’s an upside to the coronavirus pandemic, it’s that it happened in 2020, when remote working is easier, cheaper, and more accessible than ever. There are numerous software platforms and services out there to help your business navigate this crisis. 

  • Cloud accounting services such as QuickBooks Online, Freshbooks, and Xero allow your financial team to manage accounting from anywhere, with features such as automated bookkeeping, reporting, and invoicing, as well as hundreds of integrations with other apps.
  • Communication tools such as Slack and Microsoft Teams make it easy for you and your employees to work together and keep in touch remotely. You don’t need to totally rely on emails and phone calls. Basecamp, Asana, and other project management tools fulfill many of the same and similar functions.
  • File-hosting services such as Dropbox, Google Drive, and OneDrive allow you to digitally store and control access to business documents.
  • Ecommerce tools such as Shopify, BigCommerce, and Square are essential for selling products online. And shipping tools such as Stamps.com and ShipStation make packaging, carrier rate shopping, and fulfillment as simple as possible.

You don’t need to use every technology solution—nor should you. Multiple subscriptions and integrations can become costly and overly complex, leading to confusion, errors, and poor adoption by your workforce. 

Think carefully about your needs and stick to one or two large providers (e.g. Google, Microsoft) wherever possible, so you can keep most of your work in a shared ecosystem. Take some time to research different products, read reviews, and try out demos. Then, when you’ve settled on which tools you’d like to use, introduce them steadily and deliberately to your workforce; don’t overwhelm your team with multiple new processes at once. 

Ask Us for Help

Again, you don’t need to do this all alone. Whether you’ve reduced your internal accounting team or need additional support for any reason during the coronavirus situation, there’s never been a better time to outsource your business’s accounting

We’re here to help. Quantive’s team of financial professionals is ready to take care of your immediate accounting needs, from bookkeeping to AR and AP management. We can also provide executive-level support through our Fractional CFO services. It’s all available remote and on-demand.

Contact us.

How Can an SBA Loan Help Your Company Survive the COVID-19 Pandemic?

Federal, state, and local governments have encouraged or forced any nonessential businesses to shut down for the sake of “social distancing” practices. This has put a significant dent in the revenues of businesses throughout the country, with many not having the funds to support their current operations for more than a couple more months. However, due to this impact, the $2 trillion stimulus package passed by congress included $350 billion in aid geared toward small business working capital loans to help businesses survive during the COVID-19 pandemic. The first question that needs to be answered is, what is a working capital loan? Second, how can it help your small business survive in the current economic climate?

What is a working capital loan?

First, we need to define working capital, which is the difference between a company’s current assets, mainly cash and accounts receivable, and its current liabilities, mainly accounts payable, and it is a measurement of a company’s liquidity, operational efficiency, and its short-term financial health. A company’s working capital funds can be used to cover its short-term cost, such as payroll, fixed debts, and accounts payable, which if your business has been shut down or seriously impacted from COVID-19, may be struggling to do at this time.

This is where a working capital loan comes in to help alleviate some of the financial pressure and help businesses keep up with short-term expenses during a time in which little or no revenues are being generated. A working capital loan accomplishes exactly what it sounds like it will, it is an influx of funds to help cover the expenses that a company’s working capital balance typically does. However, these loans are typically not easy to acquire, and often require collateral or a significant personal guarantee by the business owner, but as a result of the stimulus package, more favorable terms are being provided through the Small Business Association (SBA).

How can a working capital loan help a business through the COVID-19 pandemic?

As the government has enforced or encouraged businesses to shut down during the COVID-19 outbreak, companies have been experiencing significant declines in revenues and may be struggling to cover their current expenses. The stimulus package including $350 billion in relief for small businesses by means of SBA loans can help your company stay afloat. The SBA’s Economic Injury Disaster Loans are offering up to $2 million in assistance to help small businesses cover their payroll, fixed debts, accounts payable, and any other bills unable to be paid due to the negative impacts from COVID-19. The interest rate on these loans will be set at only 3.75%, with length and terms being determined on a case-by-case basis.

How to receive part of this financial aid?

One important distinction is that the SBA is not actually a lender. The loan is extended by a bank and the SBA in turn guarantees a portion of the loan, which means you will need to find an approved SBA lender first. After that, any loan that exceeds $250,000 in goodwill requires an independent third-party appraiser, which is where Quantive can help you in the process. The steps to take are:

1. Determine if a working capital loan is something that could help your business
2. Confirm your business qualifies to receive part of the $350 billion in relief for small businesses
3. Find a qualified SBA lender
4. Reach out to Quantive to perform the third-party appraisal
5. Get the funds to help your business survive the COVID-19 pandemic!

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SBA Disaster Assistance in Response to COVID-19

Response to COVID-19

The $2 trillion stimulus passed by the Senate included $350 billion small business loan program that will be overseen by the Small Business Administration. This will include offering low-interest federal disaster loans to provide working capital to small businesses experiencing an adverse economic impact from COVID-19. The highlights and details of the program are as follows:

  • The Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available statewide to small businesses to help alleviate economic injury caused by COVID-19.
  • SBA’s Economic Injury Disaster Loans will offer up to $2 million in assistance and provide immediate economic support to small businesses to help cover the temporary loss of revenue they are experiencing.
  • These loans can be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
  • The interest rate is 3.75% for small businesses.
  • SBA offers loans with long-term repayments to keep payments affordable with a maximum term of 30 years. Terms are determined on a case-by-case basis.

The information below details an overview of the SBA Loan Program in general and its requirements.

SBA Loan Program Overview

The SBA has two primary loan programs. The most commonly used is the 7(a) program – which we focus on here – and the 504 program.   The 7(a) program is frequently used for working capital expansion or to fund the acquisition of an existing business.  In fact, as a business valuation firm, we are most often involved with the SBA 7(a) program in the context of business acquisitions.

One important distinction is that the SBA is not actually a lender.  The loan is extended by a bank, and the SBA in turn guarantees a portion of the loan.  Thus it’s somewhat of a misnomer when someone suggests “getting a loan from the SBA” – as it is only guaranteed by the SBA.

We very frequently hear directly from borrows that are looking to secure an SBA loan, so we thought it would be apropos to provide a quick overview of the program and its key elements.

Eligibility: What Can a 7(a) Loan be Used For?

SBA Loans are provided to businesses, but it is both the character and nature of both the business and the borrowing principles that dictate eligibility.  Key considerations include what the business actually does, as well as the character and creditworthiness of the borrower.

To be eligible businesses must:

  • Operate for profit
  • Be small, as defined by SBA
  • Be a US based business
  • Have reasonable invested equity (Yes, this sounds like a future article, right reader? )
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Use the funds for a sound business purpose
  • Not be delinquent on any existing debt obligations to the U.S. government

Certain types of businesses are declared ineligible by default by the SBA.  While there is actually quite a lengthy list, suffice it to say that if you think the government wouldn’t really want to be involved in a type of business, it’s probably not eligible for the 7(a) loan program.  Some examples of ineligible businesses include:

  • Banks and Lenders
  • Businesses engaged in illegal activities
  • Lobbyists
  • Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting

Requirements

7(a) Loan Limits: How Much?

The 7(a) program has a cap of $5 million.  That being said, many lenders do not consider loans approaching the upper threshold of size limits.  In fact, loans tend average between 300k and 400k.

That being said, some lenders prefer larger loans (and likewise some trend smaller).  It makes sense, then, to understand what the appetite a particular bank has for loans by size before starting the application process.

Proceeds:  What Can You Use a 7(a) loan for?

  • To provide long-term working capital to use to pay operational expenses, accounts payable and/or to purchase inventory
  • Short-term working capital needs, including seasonal financing, contract performance, construction financing and exporting
  • Revolving funds based on the value of existing inventory and receivables, under special conditions
  • To purchase equipment, machinery, furniture, fixtures, supplies or materials
  • To purchase real estate, including land and buildings
  • To construct a new building or renovate an existing building
  • To establish a new business or assist in the acquisition, operation or expansion of an existing business
  • To refinance existing business debt, under certain conditions

Typical Terms

Amount Term Loans from $25,000 to $5 million.
Terms
  • Working Capital: up to 7 years.
  • Equipment: up to 10 years (or useful life).
  • Real Estate: up to 25 years.
Maximum Interest Rates
  • Fixed or variable.
  • Terms less than 7 years: Wall Street Journal Prime + 2.25%.
  • Terms equal to or greater than 7 years: Wall Street Journal Prime + 2.75%.
Collateral The bank will take a lien on  business assets and/or a mortgage on real estate.
Fees SBA Guarantee Fees:

  • Loans up to $150,000 — no guarantee fees.
  • Loans from $150,001 to $750,000 — 3% of the guaranteed portion of the loan.
  • Loans from $750,001 to $5 million — 3.5% of the guaranteed portion up to $1 million and then 3.75% for guaranty above $1 million.
Underwriting Requirements
  • Personal guaranties by all owners of 20% or more.
  • Adequate business collateral, or personal assets securing personal guaranty, i.e. mortgage on a home.
  • Hazard Insurance.
Financing
  • Loans less than or equal to $150,000 — SBA provides 85% guarantee.
  • Loans greater than $150,000 — Guaranteed amount is 75%.

A Great Program

The 7(a) program is truly a great offering.  It provides access to much needed capital that ordinarily wouldn’t be available to smaller companies.  This, in turn, spurs growth in the economy.  If you need help with a valuation – or access to a lender – give us a ring.  We do a vast number of business valuations for 7(a) loans, and have a broad network of lenders that we’d be happy to put you in touch with.

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