Taking stock of your financials will be essential to ensure your business thrives post-pandemic
By Ron Coleman
The past year has changed our lives more than any other year. We have all been impacted by the pandemic in some capacity either personally, professionally, or both.
We need to get a good understanding of what has changed for each of us to understand how we will need to adapt in the coming years. For our industry, the public’s concern surrounding indoor air quality has been one major change we’ve witnessed during the pandemic. This will be an additional service that could add ongoing value to your business.
The federal and provincial governments have increased their level of debt significantly, which at some point must be serviced and eventually paid off. For municipalities, they have lost significant revenues and been forced to delay projects.
Many of us, in our personal lives and in our businesses, have taken on additional debt. Financial institutions have given temporary breaks that have to be repaid. Likewise, credit card companies and mortgage institutions have “deferred” payments and interest.
But what does this all mean for you? Let’s explore these areas and get a better understanding of what has happened and how this might impact you.
Breaking it down
The federal and provincial governments have offered loans and grants to individuals and businesses. The grants don’t have to be repaid but the governments must recoup that money from us in other ways—think taxes. The loans must be repaid; some were interest-free for a period.
The Canada Emergency Business Account (CEBA) loan is interest-free until December 31, 2022.
Starting January 1, 2023, interests will be charged at 5 per cent per annum. To qualify for the forgiveness portion of CEBA, you must repay the amount due by December 31, 2022. For example, if you borrowed $60,000, you must repay the full amount due, which would be $40,000 by December 31, 2022, to keep the forgiveness portion.
If you borrowed $60,000 and repaid $35,000 by December 31, 2022, you would still owe $25,000. Therefore, there would be no forgiveness unless you repay your full obligation.
Applicants will now have until June 30, 2021, to apply for the $60,000 CEBA loan or the $20,000 expansion at their financial institution. For information about CEBA and how to apply, visit www.ceba-cuec.ca.
Check what loans you have received and what your obligations are. What other loans have you incurred over the past year and need to be serviced?
If you are a landlord and gave your tenants a break under the Canada Emergency Rent Subsidy (CERS), how is that impacting your cash flow and your debt leveraging? Relief under the Canada Emergency Commercial Rent Relief (CECRA) is forgivable as of December 31, 2020.
As an individual, you have to pay tax on the CERB you received. You may also have extended your mortgage, your personal and credit card debt. It is impossible to know exactly what the coming year will bring.
Managing cash flow effectively, for all of us, is going to be more crucial than ever. If we have to play catch up on deferred expenses, we need to be aware of that fact and manage our responsibilities accordingly.
Planning ahead for uncertainties will be essential considering governments have been pouring money into the economy since the pandemic first began. They will need to recoup that money in some way. Landlords that gave tenants a break might also try and make up for the shortfalls in rents over the past year.
Since property prices are going crazy, this is freeing up cash for some people and putting others in debt. Think—where are the people that you interact with on that spectrum?
Seniors’ care has proven to be extremely poor for those living in long-term care homes. These facilities are going to have to be improved with government aid.
As HVAC/R and plumbing contractors, you have an opportunity to provide services to these institutions, homes, and offices, that need improved indoor air and water quality. Many municipal and private gyms have been closed and will need to be upgraded. What other businesses can you think of that will need additional support that you, as a contractor, can provide?
This is a time for getting ahead of the curve. Start planning for the future so that you have protected yourself from the fallout and will rather benefit from it.
Support your employees
Remember to support your employees, they are your most important asset. Ensure that they are not suffering from a financial crisis. People often do stupid things when they get caught in a financial crunch. Remember they are going to have to pay tax on the CERB they received. If you received CERB that you were not entitled to you must repay it. The CRA does have very strong collection powers but the expectation is that they will take a softer approach. If you were on salary and working from home in 2020, you can claim home office expenses. The flat method of claiming up to $400 as home office expense is likely the best route for most of us if we are homeowners. Test the detailed method; part of your rent will be deductible if you were a renter working from home during COVID-19. Form T777S explains both options in detail.
What sort of commitments can you get from your suppliers? If air conditioning sales were down last year, they are likely to spike this year. There is likely going to be a surge in maintenance. Can you secure the necessary parts in the quantities, you will need?
Restaurants, bars, hotels, clubs, gyms, recreation centres and other facilities that were closed for most of the past year are going to need your services too. Position your business to suit them. One HVAC contractor owner recently told me that customers haven’t wanted to talk to him, but rather they just want to talk to the technicians. As an owner, if you felt this, you are going to need to start getting back into the mainstream. Do this by initiating contact with those businesses that were closed. On the other hand, some businesses were very busy, such as bicycle shops and many retail sports businesses. They will likely have a quieter post-pandemic life.
Two key takeaways: Make sure you repay your CEBA commitments by December 31, 2022, and try to repay any money due to CRA in a timely manner. As I said, they are expected to take a softer approach to collections but, in my experience, they are not the easiest people in the world to deal with. Try to stay below their radar!