The Millionaire Dentist Podcast

Episode 25: What Dentists Need to Know Now About the Payroll Protection Program (PPP) During the COVID-19 Crisis

Listen to "What dentists need to know about the business loan program (PPP) during the coronovirus crisis" on Spreaker.

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On today’s episode of The Millionaire Dentist Podcast, we share with you the advice we’re giving to our clients about the Payroll Protection Program (PPP) being offered during the COVID-19 crisis. You’ll hear from Four Quadrants Advisory’s top financial expert and COO, Brogan Baxter, and Steve Levy, J.D., our lead CPA.

Update: This podcast was originally recorded on April 14, 2020. Another coronavirus relief package was passed on April 21, 2020 that replenishes funds for the Paycheck Protection Program. The information and deadlines in this podcast do not speak to the most recent replenishment funds. However, it provides valuable guidelines for talking to your bankers and reveals what we learned the first time around. 

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Podcast Transcription:

Speaker 1:

Hello everyone. Welcome to The Millionaire Dentist podcast, brought to you by Four Quadrants Advisory.

Speaker 1:

On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised we do speak with an honest tongue and may not be safe for work.

Casey Heirs:

Hello and welcome to The Millionaire Dentist podcast. This is Casey Heirs, and we have a unique format for our listeners today. I've talked with many dentists who are anxious, frustrated, and unhappy with the guidance, or lack thereof, that they are receiving right now. I wanted to give our audience a sneak peek into the type of proactive guidance our clients receive all the time.

Speaker 2:

We're going to share a client-only communication that we sent out last week regarding payroll protection program, or the PPP as it's commonly referred to. Now keep in mind this is a fluid and ever-changing situation and was recorded last week and sent out to our clients, but we wanted to get this out to the masses in case someone needed some clarity or some assistance. I haven't spoke with a dentist today who spent considerable time researching and studying the PPP program on her own because her CPA and advisors were not providing the help that she needed. You're going to hear Four Quadrants' COO, Brogan Baxter, and our head CPA who is also an attorney, Steve Levy, discuss this topic.

Brogan Baxter:

Hello.

Steven Levy:

Hi guys.

Brogan Baxter:

Guys, this whole PPP thing has been changing so fast. I just sent out a big email to everybody on Wednesday at 1:00 PM Eastern. By about 7:00 PM Eastern it was already outdated. So, instead of just inundating your inbox with emails, I thought it would be kind of cool and a little different just to get on here and explain a little bit more about the PPP. I also want to talk to you about a little bit of the next steps, because like I said, things have changed a bit. And I've got Steve here to help me if I misspeak in any specific area, or to lend the accounting aspect of what we're going to be suggesting here for the PPP next steps. So the whole intent really is for you to just kind of jump in wherever you feel it might be helpful for you, or pick it up wherever you're at in the process.

Brogan Baxter:

What I have learned so far from doing this is there have been changes all the time, that's certainly one thing. But, I've also found out the further we get down the rabbit hole with this PPP, the more unknown-

Brogan Baxter:

Everybody that's a client of the firm at this point has applied. I do have about a dozen or so clients that have already been approved. The approval are coming in days, not weeks. We were originally told weeks and it's happening much, much faster than that. As a result of that, you're forced to have to make a decision faster. So, that's what we're talking about a little bit today. In my original email that I'd sent off I had also mentioned that you could request talking to your banker about the SBA E-Trans system as a way of delaying getting access to the funds. So, you could get approved now, take the funds later as it was closer to you reopening your practice.

Brogan Baxter:

I've talked to bankers in six different States at this time. The SBA has totally shut that down. Evidently a lot of people were trying to take advantage of that loophole. So, they issued guidance that said that's a no-go. That was one of the things that definitely impacted my email, that's something that became updated just in the last couple of days. This is changing daily. So by the time you hear this, there may be new changes again. If there is, if it's something easy, I'll email. If not, then maybe we'll do this again.

Brogan Baxter:

The other thing that also came out from the conversation too with some of these bankers, and I have heard this and confirm this across numerous banks all throughout the country, the SBA is actually requiring people that apply for the loan to close on the loan within 10 days. That's a huge difference. And that's not even business banker days; that's calendar days, which even put more and more pressure on the banks that are already on roller skates because of how much they're getting inundated with this PPP program. It's been wildly popular. They are burning through money in this left and right and it will run out of money. And the anticipation is it will run out of money quickly. From what I've been told, it will run out of money probably within the next couple of weeks. So, at that point we have to rely on the government to fund what is anticipated to be another $250 billion. That's about 70% of the original program size. So, we have to rely on that.

Brogan Baxter:

Right now, of course, because the government's involved, everybody's posturing, and we have some back and forth between the Republicans and the Democrats. This will probably get done. I don't know if they're going to put stipulations on it, but we'll ultimately see. I don't have a great deal of confidence, I should say, and that it's going to be just as rosy as the first package was, but we'll wait and see.

Brogan Baxter:

So, you've applied for the loan. Some of you have been approved for the loan. Some of you that have been approved for the loan have been told you have 10 days, and for those of you that have not been approved yet, you very likely will. I don't think I've heard of anybody getting denied yet. And when you do get approved, they will tell you, "You need to close within 10 days." So, what do you do? And that's what we're talking about.

Brogan Baxter:

When it comes to taking these funds, okay, here are your options. One, you take the funds now, that's within the 10 day timeframe. I would urge everyone, if that's the route you're going to go, push that out as far as you can get it. So, the 10th day and the 11th hour, do that if you can. Just make sure your banker's aware of it, that you want to get it done. You want to get it done at the absolute last minute so you can buy yourself any additional time you possibly can. The other option, much more risky in my opinion, is to withdraw your name and tell them you do not want the funds. If you do that, here's the option you go from there: You withdraw your name, they take you out of the queue. You have to go through and reapply. It is not yet been agreed to, or clarified, or even approved that someone, if they withdraw their name, that they would be allowed to reapply. So, in my opinion, that's a roll of the dice. What do you think Steve?

Steven Levy:

Yeah, I really think so because they're really looking at the program closely, and that if they see in their system that they already have this application for you, then that might throw some things off for this re-application. So, I would agree.

Brogan Baxter:

Yeah. So, you're rolling the dice that you may not be allowed to re-apply. You're also rolling the dice that they are going to fund it. The rules are going to be the same, in that those funds even at that point would be available at the time that you're going to need them. I'm kind of one where I was raised in the Midwest. So with me, you never look a gift horse in the mouth, and the government does not offer free money programs like this, well ever, as far as I can remember back, and especially at this magnitude. So, the strategy, in my opinion is to go ahead and take the money. You got the money, take the money. If not, it is a bit of a roll of the dice. If anybody'd like to have a specific conversation about that, or you want to email a followup about that, happy to handle that for you, but we're going to go with the rest of today's recording is telling you, okay, so if I take the funds, what happens after that point?

Brogan Baxter:

So, here are the stipulations with... If you do have the funds. You've been approved, you close, you get on the 10th day. So, hypothetically, today's Good Friday, actually it's a not a stock market holiday. It is not a bank holiday, but it is a stock market holiday. So, today's the 10th of April. Let's say, hypothetically, you get an email in your inbox today that says, "You've been approved," okay. So, I believe from what I am understanding, your 10 day calendar day limit of needing to close is 10 days from today. So, that would put it at the 20th of April. So, at the 20th of April you close, and let's say you close at the end of the day, once you accept those funds and once you do that closing, you have eight weeks from that day to utilize all of the funds in order to get the loan forgiven. Let's face it, I mean that's why everybody's doing this, is they want to get the loan forgiven. It's free money from the government.

Brogan Baxter:

If you actually close on the loan on the 20th of April, then eight weeks from that day is around June the 15th, okay. I would hope that everybody is back up and running by June 15th. It's not a guarantee that'll happen. I firmly believe that if the government rolls out a big orchestrated program like this one that they're doing now with the PPP program, and for some reason people are unable to be back up and working by June, I think there's going to be some additional form of forgiveness, either they're going to give people that have already been approved additional PPP money, because what they don't want you to do is have to go back in and fire everybody again, okay.

Brogan Baxter:

So, I'm not as concerned so much on the backend, and as much as this thing is changing and morphing on a daily basis, it's going to be something that is user-friendly because they want people to take advantage of this program, okay. So, you have eight weeks to use your money, and to use your money, you have to use all of the money. The stipulations when you use the money is that at least 75% of your funds need to be used for what are deemed payroll costs. And Steve, this is where I'll have Steve jump in here, but my understanding of payroll costs is an employee wages, bonuses or salaries up to $100000. So, for all of our clients that are listening that make more than $100000, it's only going to forgive $100000 worth of the equivalent over that two and a half month period, or that eight week period.

Brogan Baxter:

Additionally, 401k wages are also included as payroll costs, as are health insurance reimbursements. Steve what else did I miss?

Steven Levy:

No, that really covered it.

Brogan Baxter:

Okay.

Steven Levy:

It's wages, it's health insurance costs and retirement plan matches.

Brogan Baxter:

Okay. So, 75% at least has to be used for that. In addition to that, there's also some state and income tax stuff on that, right?

Steven Levy:

That's really towards the application part.

Brogan Baxter:

Okay.

Steven Levy:

So...

Brogan Baxter:

It might not necessarily be used for the actual funds when it actually does come out.

Steven Levy:

Correct.

Brogan Baxter:

So, we do have the 75% rule that has to apply for that. So, I know you're all sitting there asking yourself, "Okay, if it's been approved and I've got the money, and I have to use it in eight weeks, that means I have to rehire everybody?" And I would say that is correct. That is what you need to do, and that is the whole reason the program was created to begin with, was to get people off of unemployment and really back onto payrolls. Now, here's the nice little caveat here. Whatever you applied for from your original PPP app, they asked you how many full-time equivalent employees you had. You need to know that number. So, go reference your PPP app, know what that number is. That number, you need to be back to at least that number by June 30th, and frankly if your funds are going to run out June 15th, you really want to be back to that by the end of your eight week window if it's before June 30th.

Steven Levy:

Now Brogan, one thing to note is that the date that they may reference for your full-time equivalent employees may be February 15th. So, keep in mind what your employee count is on that day, and then see where you're at on June 30th for that count.

Brogan Baxter:

Great. Now that count, that is the same one that's on the PPP app though, correct?

Steven Levy:

Exactly.

Brogan Baxter:

Okay. So, reference that app, make sure you know what that number is, okay? That's the goal you have to hit. Now, just looking at the numbers for everybody, if you applied for a PPP loan with a certain employee count, and then you got two and a half months worth of payroll, and you essentially have to pay everything back in two months, you need to get everybody back on payroll pretty darn fast. Otherwise, you're not going to be able to burn through the payroll. But there is a strategy to it, and here's the strategy that we think would be a really good idea, at least right now. So far, I don't think we see any issues with this from what we've came up with. So essentially, here's what I would like each of you to be able to do.

Brogan Baxter:

Once you've been approved, reach back out to all your employees, tell them you want to put them immediately back on payroll and to get them off unemployment right away, and you're going to pay them 75% of what they were making beforehand. And that's just to sit at home. So, instead of collecting the check from the Department of Workforce Development of your state, they're now collecting that from your office, okay? So, now you have re-engaged your employees, which one, lowers issues with them going someplace else and increases your retention. So, you're re-engaging your employees, you're putting them back on payroll. The caveat is you also have access to them for emergencies or whatever other reasons you might have, so then they can come in and work. If they do need to come in and work, or you want them to come in to work, or you need them to come into work for whatever reason, I want you to pay them 100% on that day that they come back, or for the hours that they come back, Okay? Otherwise, they're going to stick with a 75% they've earned.

Brogan Baxter:

Once they do get back up and running on a full capacity, or even if they baby-step their way back into it, you can kick them up to 100% whenever they come into work during that timeframe. That's kind of the gist here. We're getting the employees back engaged now. We're paying them more money than they're getting with the unemployment, by giving them 75% more. They're back on your payroll. They're back on your 401k, if you're still doing that, which all counts as payroll costs, so you're burning through the government money that you've been given.

Brogan Baxter:

What happens... The million dollar question, what happens at the end of eight weeks or almost the end of eight weeks if you've not hit your 75% capacity? At that point, anybody that is on payroll, anybody that has staff on payroll or spouses on payroll, we are going to want you to issue a one-time bonus to the spouse on payroll for the difference to get you up and over the 75% threshold. Since you as the employer, the dentist making more than $100000 are only limited to $100000. That doesn't mean you have to earn that, but it means that's all that's going to be calculated for the forgiveness, okay? So, if you're being limited there, we're going to move the money over to your spouse that is not making $100000, so then we can get them on pace to make a number closer to $100000. That's a nice way to get around this little caveat here.

Brogan Baxter:

Now, that's what you do from the employee side. That's where you get 75% of the funds at least that have to be utilized there. So, let me run through some what ifs and some frequently asked questions and things. Do I have to hire all my staff back? Whatever you put on the PPP app, you need to get those people back, okay. What happens if I don't? Well, let's take an example here.

Brogan Baxter:

Let's say on your PPP app you referenced 10 full-time employees. Let's say you're only able to re-engage nine of those 10. That means immediately your PPP program funds 10% of it, nine out of 10 okay? So, you get 10% of it that's not going to be able to be forgiven. If it's not forgiven, it rolls into a loan, not that that's the worst thing in the world. It's a two year loan, it's 1%. That's better than any rate you're going to get anywhere else. It's not that big of a deal, but let's utilize it if we can.

Brogan Baxter:

Another caveat, they do not, I repeat, do not have to be the same employees that you had before. It just has to be the same amount of lives, employee lives. If you had, back to my example, 10 full-time employees and you bring back eight of your originals, and you go out and upgrade in two areas and you have 10, 10 is fine, okay? If you hire those 10, then you can take the same deal that you did with your staff. I want to pay you more to get you off of unemployment. I'm going to get you a re-hired here, or I'm going to get you in into my practice, and then when you start working again, I'm going to kick your number up to this number, that 25% higher number, okay?

Brogan Baxter:

Here's where we seize on opportunities folks. There are a lot of dentists out there that are not applying for the PPP loan because they're getting terrible advice. There are a lot of people that are waiting or withdrawing their applications because they're nervous, okay? The talent pool that's out there is probably the best it's been in many, many, many years. The last number I saw was 6.6 million unemployed people that have claimed for unemployment benefits. I guaran-damn-tee you some of those people are in dental. So if you ever wanted to upgrade your position, but you can't because the market's too damn tight, now is the opportunity to seize that opportunity with this process we're talking about.

Brogan Baxter:

Steve, is there anything you'd add to what I just said, any of that stuff?

Steven Levy:

Yeah, so I would say that the SBA and the Treasury, who are working in tandem, are still coming out with how the whole employee count and salary at this magical date of June 30th is going to work out. But, having that comparable count at that date to when you applied for the loan, that's a good frame of reference to follow, at least for the time being. But, we'll find out more soon hopefully on those rules.

Brogan Baxter:

So, stay tuned, is the message I'm hearing there, that's constantly evolving.

Steven Levy:

Exactly.

Brogan Baxter:

Okay. So, those are some of the main strategies we want to help you guys employ, okay? That's from the payroll aspect of it, okay. I had said when you got these funds, okay, that you get with this PPP program, at least 75% need to go to payroll costs. Now, luckily for you, payroll costs include you, it includes your spouse, the 401k, the health insurance, the wages, the salaries, all that stuff, salaries up to $100000. What about the other 25%, or less than 25%, okay? The big sticker for the government program is the over 75% on payroll. That's the biggie, okay. That could be 80, 85, 90. You can hire more people, that doesn't mean you get more forgiveness, but it does mean it's a lot easier for it to be forgiven. So if you had 10 lives and you now hire 11 back, it's going to be easier for you to hit that number, okay.

Brogan Baxter:

I would like for people when they do go through to make these re-hires to do it in relatively short order, as in within a week or so of getting the funds. We're happy to have conversations. I would encourage everybody, hire your staff back at the same wage that they were hired before. Pay him 75% of that now. Tell him, "When I call you into the office, or I need you to come into work, I'll kick it up to 100, and then once we're back to full work, you'll be back to 100% of what you were."

Brogan Baxter:

The other 25%, that other 25% is earmarked for very, very specific usages, okay. This is where we can also potentially take advantage of some additional funds there. The additional 25% can be used for the following: rent, interest on any mortgage through the business, or any loan interest that was in place both as of, I believe, February 15th, right?

Steven Levy:

15th, yes.

Brogan Baxter:

Okay. So, we've got, it could be used for rent, it could be used for interest on either of those types of loans that I had discussed. It can also be used for utilities, and I believe that's the exhaustive list, right Steve?

Steven Levy:

That's correct.

Brogan Baxter:

Okay. So Steve, another million dollar question, what happens if I want to update my website with it or something?

Steven Levy:

Well that really doesn't seem to fall into those categories. So, I would say that doesn't include.

Brogan Baxter:

Okay.

Steven Levy:

In the rules.

Brogan Baxter:

So that would be unforgivable in the eyes of the government?

Steven Levy:

That's completely unforgivable.

Brogan Baxter:

So guys, when it's unforgivable, that's where we talk about it having to roll out to a loan, okay. So, that's over two years, that's at 1%, and I forgot to leave out this little tidbit, no payments for six months on that too. So, it's actually not an awful deal. That being said, if you knowingly go out and it's just very egregious that you took all this money, you rehired no staff, you paid only yourself and your spouse, and then you spent the rest of money on marketing, or distributions, or whatever, the government will not look very favorably on that because that's just blatant. And when you signed this PPP application, there was specific areas on there where you had to sign affidavit saying, I'm basically doing this for the goodness of my business. I'm not going to misuse the funds knowingly, and all this stuff, okay.

Brogan Baxter:

So, that being said, don't even mess with that. I mean, it's not worth your time. But rent? Absolutely. Utilities? Absolutely. And loan interest and all that stuff, also, absolutely. Now, something else too is we could pay back rent, which is another way to get you guys some additional funds. Maybe you skipped rent for a couple months while you're down, so let's get all that rent check back to you guys. That puts more money in the dentist's pocket if they own their dental building. If it didn't, then you can always pay back your landlord and do some of that stuff too. We can also handle that on a case-by-case basis. So, please send us an email, we're happy to answer that for you.

Brogan Baxter:

So, fast forward, okay, all the way to the end. Eight weeks are up. You've hit your numbers. We helped you shore up the onetime bonus to the spouse to get you over the 75% threshold, built in a little bit of a buffer there, maybe we got you to 77%. You took the other 23%, you used that for approved expenses being the utilities, the interest, the rent, all that jazz, okay. Now what? How do get it forgiven?

Brogan Baxter:

Well, the lender where you went and got the loan approved from, you have to go back to that lender, that banker, and you have to say, "Hey, my eight weeks are up," or if you went through the funds before the eight weeks, "I've now exhausted all my funds. What do I need to show you in order to get this forgiven?" Here's what you're likely going to hear, and this is something that I almost certainly anticipate changing. So Steve, feel free to jump in, but I think what you're going to have to show them are payroll reports over the eight week period that shows people were paid out, it shows the amount of full-time equivalent lives, that those numbers were hit, and that even after adjusting your salary down to $100000, you still hit the 75% threshold.

Brogan Baxter:

You'll have to produce some paper records for that. You may even have to produce a bank statement showing that those funds were actually pulled from your account or something like that. Then any canceled checks for rent, or anything showing that utilities were paid, or anything documenting that loan interest, or utilities, or rent, or any of those additional costs were paid.

Brogan Baxter:

My understanding as of now being April 10th, Good Friday, is that that's about as in depth as they're going to get. They're not going to look to find out what employees you have, or if they were with you before, or really start digging into the numbers. They basically say, does this total equal what you were given? Yes.Okay, of that, is this much allocated for payroll? Yes. Is this much allocated for other approved expenses? Yes. Is there anything left? No. Totally forgiven, okay? They might re-categorize some things though, okay?

Brogan Baxter:

I personally do not think this is going to happen because the bankers are already inundated with this entire process. So, sorting out all the stuff on the back end, I think they're going to be a little lenient. That's just my personal opinion, because you do not go through the SBA, you actually go through your local bank to get the loan forgiven, as of right now, at least. So, when you do go to get this forgiven, I think they're going to give it a cursory look and then just kind of say, "Yep, everything looks good and it's forgiven." If they do re categorize something, they will tell you. If they do, I would want you to get documentation of that. Tell me why something was mis-categorized, or tell me why you're not counting it, and then we'll figure out how to deal with it.

Brogan Baxter:

Quite frankly, even if it's 10% of your costs, I mean that's not going to be a big percentage of the number if you think how much money you're getting from the PPP programs. Most clients are getting around 100000-150000, somewhere in that range. So, even if they re-categorize 10000 or 15000 or something like that, it's over two years guys. It's not a lot of money, it's at 1%, which is deductible anyway, so who cares.

Brogan Baxter:

I think though, the sticking point though on that, Steve, though is it's a little fuzzy on how that's going to be treated from a tax standpoint, is that correct?

Steven Levy:

Correct. As far as the payment that you have to make later-

Brogan Baxter:

Yes.

Steven Levy:

If you have some not forgiven?

Brogan Baxter:

Yeah, the part that's not forgiven.

Steven Levy:

Yeah, I think they'll probably swing that into a regular loan, and have that interest deductible, but they're still really not sure how that's going to all flesh out.

Brogan Baxter:

Yeah. So guys, if it sounds like we're a little fuzzy, it's because everybody is. Like I said, this is something that is constantly evolving, and we just wanted to make today's recording so we could kind of give you a better idea. So, hopefully if nothing else, this should help assuage some of your concerns, help you feel better about where things are sitting and what the game plan is moving forward. Happy to answer any questions. Happy to deal with an email, so you guys know where to find us, and hopefully this has been helpful, and feel free to forward this over to any of your friends that you feel like could benefit from it.

Speaker 2:

I hope this benefited some of our listeners. If you would like this type of advice on all personal and practice matters, don't hesitate to contact us. We'd love to talk.

Speaker 1:

That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in.

Speaker 1:

The Millionaire Dentist podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year they retain over 95% of their clients.

Speaker 1:

Thank you again for joining us and we'll see you next time.