Hey, Washington! Legislate This & Help Save Small Businesses
The Coronavirus Cash Crisis
Large corporations and their lobbyists have long used “we’re helping small business” as a trusted trojan horse to enact legislation or change tax code in ways solely for their benefit.
Being National Small Business Week, I thought it would be a great time to propose legislation, available only to businesses with less than 100 employees, that’s actually designed to benefit small business owners and improve the ongoing stability of our country. Please keep in mind that this proposed legislation also is inspired by more than half a million poll responses we’ve gathered to understand the financial impact felt by small business owners during this Coronavirus Crisis.
Read our draft below and feel free to build upon it.
Then let’s work to bring it to Washington and make it a reality.
Cash Is King
The single most important datapoint leading into the crisis which Alignable reported in our March 28, 2020 Impact Report was that 37% of small business owners had cash reserves to sustain their businesses for only 30 days or less.
Why did this happen? Well, from a business owner’s perspective, it makes sense to put all available cash to work for your business. Plus, the tax code encourages business owners to spend revenues on business operations rather than build financial reserves.
Policy Concept: Create A Business Investment Crisis Fund
The greatest opportunity with regard to Federal Policy is to create an incentive for business owners to build a financial cash reserve or “crisis fund” for their business.
Think “personal IRA” or another type of rainy day fund built on regular contributions. With our proposed plan, small business owners will have the ability to set aside funds in a pre-tax manner to create a Business Investment Crisis Fund. Each business should be able to grow its fund to the point where it holds up to a maximum of one year’s expenses (based on a running 5-year average).
Access Triggered By An Event
These funds become an asset of the business accessible by the business owner with a Federal or State disaster declaration (similar to what we use to release funds for natural disasters like hurricanes, tornados, fires, or earthquakes).
Small business owners would then be able to access the funds tax free for the duration of the recovery and once again be able to build back up the reserves thereafter.
Foster Financial Stability
The funds could be managed by existing local banks or other financial institutions and have stipulated guidance on acceptable risk levels of investments made within the accounts.
Business owner contributions to the fund could be transferred with the sale or transfer or ownership of the business or converted into a standard IRA if the business is sold or closed.
Supports Economic Development For Undercapitalized Communities
Under the Small Business Administration’s guidance, the Federal Government could then provide a matching grant program for historically undercapitalized businesses within specific communities or based on business demographics (minority-owned, veteran-owned, women-owned, non-profits, etc.).
States could contribute to these funds for economic development programs, as well.
Eliminates Need to Pay Banks Billions to Distribute Cash
By establishing a direct connection between business owners and the government through these crisis funds, the government also would be able to inject relief stimulus directly into these accounts as needed during a crisis.
That would eliminate the need for the Treasury Department to outsource loan origination (PPP funds) to banks and potentially insure funding is used for specific expenditures.
So, how does that sound to you?
Please make any helpful suggestions in the comment section below and we will read all of them and incorporate additions or make other amendments based on your input.
Thanks in advance for your help with this proposed legislation, as it’s vitally important that it reflects your needs and opinions.
Comments (1-10)
Really small businesses (Mom & Pop) that have 0-5 employees; always get lost and left out. How does the PPP apply when there are no employees or salaries paid. Add to that not having great credit and you get no help. They operate on limited funds and their income is under $50,000. How do they fit in to this?
This makes "cents"! The only downside I see is the upstart business with less than 5 years under their belt. Can a micro business owner include the emergency fund as part of their initial business plan? (Which of course, they should anyhow.) And consider the company that is at that three year mark, just breaking even or just breaking out. If a company has to have a 5 year history to qualify, that may exclude too many otherwise potentially successful businesses.
Generally this is a great concept and one that we would definitely participate in. As a business that is only 3 years old, I would like to see clarification that a business of any age can start a fund and make contributions and then the max amount would be adjusted (annually?) based on a running 5 year average, maybe using a 2, 3 or 4 year average up to that point if necessary.
I would also like to see language that allows the taxable distribution of the funds for other purposes. In business, you just never know what might happen and I think more would be willing to participate if it was clear that the government couldn’t “hold the money hostage” if it was really needed.
Eric,
There does not need to be even more legislation to make this happen for small business owners. They can do all of this (except the tax deduction) using a properly designed whole life insurance policy from a mutually owned life insurance company. The additional benefits are that the cash value in the policy remains liquid for the business owner to use for any need they have not just an emergency. The funds can grow without being taxed and if structured well can come out without taxes just like a Roth IRA works but having no limit on contribution amounts.
Anyway, just thought I would share the idea that small business owners can begin using now regardless if any legislation would ever pass. Let me know if you have any questions.
I think at this point we should not be charged for unemployment when I know many of the people on my list are able young men or women who can work in my business, construction or any other labor related fields. I am paying for people who worked for me for maybe two weeks then ghosted me-not showing up or calling. Some of them I don't even remember because it was so long ago. Many are constant repeat unemployment cases. I do know that some people need this benefit. However if a person is able to work, they should not get it. The unemployment system disregards any of my protests of people who quit. Why do we have to continue paying for these people? At some point will there be any money left in the system to help those who really need the cash. What do other employers think? Am I too harsh?
As a small business consultant for the last 20 years I would have to say one of the top complaints I hear from clients is the "government is in my way"!! Taxes, OSHA, regulations, licenses and so on. In this thread I am reading where all of a sudden government is our friend, REALLY!! Mr. Berry of Stillwater Financial stated the answer, insurance that you buy and you maintain that you can borrower from at anytime while maintaining the value of the policy. (This was the short answer). This would potentially cover everything from the start-up to the seasoned business. It should be an expense in your start-up budget and every budget thereafter.
Our firm highly recommends this to every client we work with once they complete their 1st year of operation. We suggest they meet with an insurance broker and get such a policy in place. After all they should have started to put funds aside from the first dollar they made and every dollar after that. The expense was in the budget just like the electric bill.
As a Entrepreneur of 50 years I have had to learn many things the hard way. There were no consultants or coaches for me to talk to when I started my first business. This is one reason 20 years ago I open my consulting firm. To help Entrepreneurs get over the hurdles that they may have realize would be there along with those they did not see coming.
In the end, the correctly structured use of insurance will be worth a heck of allot more than any government hand out. You buy it, you control it and you use it as you need to use it....without having to ask the government for permission.
Buy the way my firm does not sell insurance.
Eric: After siting on several State Small Business Panels I have come to the conclusion that they don't care! I have tried to get Chamber of Commerce support to no success. To me small business is less than 50 employees. We need to organize a small business coalition. There are so many of us that our total voices would have to be listen to by state governments. Unless Government down sizes and monitors their waste full spending small business will be put out of business without some assistance.
The pandemic has hit the performing arts community in a way we never imagined. Our art form flourishes with in person performances that cannot be matched with live streaming and videos. While we have taken to technology to try and engage our audiences and earn a few dollars, it has not been enough to sustain theatre groups or large instrumental ensembles. Because of the loss of in person performances, the individual performer has lost income. Any help with replacing even part of that income is vital.
It sounds like a winner to me. I appreciate the well thought out facts and figures thinking and to my understanding YOU'VE nailed it! I say Go For It, You Got this.
I'm presuming the 'incentive' would be that whatever portion of business income that's contributed to this fund would not be taxed during the tax year in which the contribution is made. Except for the possibility of withdrawing under tax-free emergency conditions, any spending from this reserve would be taxed at the (likely higher) prevailing rate of the tax year in which it was spent. Good deal?