COVID-19 Vacation Rentals / Hospitality Industry Update April 7, 2020 – Payroll Protection – Layoffs
COVID-19 Vacation Rentals / Hospitality Industry Update April 7, 2020 – How to manage your rates during COVID-19 April 7, 2020 Updates on COVID-19 / Corona Virus updates for the Vacation Rentals / Hospitality industry from Micah Berg Founder & CEO of https://www.thevru.com/ and Justin Jones Founder and CEO of https://imegonline.com/ In this update we talk about payroll protection program, layoffs, and more
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Micah Berg 0:03
Welcome everyone welcome back to a another vacation rental podcast update about COVID-19. I’m here with Justin Jones again CEO of I mag internet marketing expert group. And I’m Micah CEO of real joy vacations and founder of vacation rental University. And today’s update, we wanted to talk to you a little bit about the about laying people off and some ideas around a part time strategy. So maybe you have had some ideas about layoffs or you’ve had necessary layoffs. But then there’s a core group of staff that you’re not sure you can afford to lay off just because you still have workload, maybe you’re partial occupancy or you’re in a related industry and watching this and so you still have work to do, but not much revenue coming in. And this is something that Justin brought up because it’s something that affects him to a great degree. And we’ll we’ll talk about some of those, some of those instances and then we’ll get into some tips. around how to leverage layoffs and the PPP and just some idea. So just to clarify, you know, we’re not accountants, we’re not federal aid experts. The release of these laws are muddy and all this. These are just ideas based on what we can read what’s been released publicly, and what we know today. So, Justin, talk to me about what’s been going on at I mag, you know, obviously layoffs are part of there because you’re still supporting clients, even though your revenues got cut drastically. So,
Justin Jones 1:32
yep, I’m obviously a lot of people shut down. So there’s no reason to specifically market and immediate. So we’re doing long term strategies as opposed to short term. So obviously, people reduced budgets. I don’t think we had anybody who completely cut budget which was smart. So hopefully that means we’ve got an educated client base because of us or they’re just natively smart people, the marketing world, sure. Um, but uh, Definitely budget cuts all over. Yeah. And there’s previous
Micah Berg 2:05
stuff, right. So like, in addition to some cuts you did, you’re giving away necessary services for free your
Justin Jones 2:12
fixed costs, we’re not getting rid of we’re gonna help the client by doing free services, if it’s a variable cost, and it can save us money. We do defer that down the road. As long as it’s but we talked about this in other podcasts, I’m not gonna go deep on it. But if it’s an asset that produces cash, regardless of economic times, you don’t get rid of it.
Unknown Speaker 2:29
Micah Berg 2:31
So but the simple by kind of a point we’re driving here is you still have a ton of work to do, even though your revenue got cut, right? Yeah.
Justin Jones 2:39
And so yeah, we still have some vacation real clients are open. So one of the things I think that might get us get into the conversation is one some filters you may filter through of how to utilize the staff that you are required to keep. Mm hmm. Um, so first thing we could talk about is if you gotta lay people off filtering through some variables of like, how to know when to lay people off. Well, number one, you hit investor talking last week. If they don’t have any work to do, regardless of economic times, you should probably let them. You should probably lay him off. Yeah, you have no work.
Micah Berg 3:15
Well, that’s it. There’s nothing to do. No matter how much money have. You shouldn’t pay people to do nothing most of the time.
Justin Jones 3:22
Yeah, well, it’s bad for financial but it’s also bad for culture.
Micah Berg 3:25
Yeah. Especially if half of your crews working, which is kind of what you ran into.
Justin Jones 3:29
Yep. So um, we did do some layoffs. There may be some more coming. Depends on how long this thing rides out. No one really knows of course, hoping sooner than later. And then the second part to talk about would be maybe doing a hybrid where you keep people part time not fully lay him off. And then how might you still let the government support them so they don’t go backwards and pay? Yeah, it allows you to preserve cash flow.
Micah Berg 3:56
Yeah, so Exactly. So what we have kind of figured out Between talking reading the law, obviously talking to people that we know, is a partial hours cut. So the way the law reads today, this is what we understand is if you’re paying people that used to be full time, or used to, let’s say, even 30 hours, you’ve reduced their hours significantly, and their pay and they fall under the state level of unemployment, there is an opportunity for them because of COVID to claim for unemployment under reduced hours, which means they don’t have to be fully unemployed, you can partially lay them off or drastically cut their hours. So in this scenario, they will go from full time to making and at whatever pay you were paying them to minimum wage and 20 hours a week, right part time, halftime. In that scenario, they make drastically less money and they qualify to go file for unemployment under reduced hours. And so the way to think about this Is once they apply for unemployment in Florida, it’s $275 a week, then you add on top, the $600 from the Fed now all the sudden they’re making 875. Well, the way the state works it is if you’re paying them, some portion between zero and 275, the state only makes up the difference. So they don’t get the full 275 from the state, they get the difference of what is it 160 20 hours times about eight bucks an hour. So they’re going to get 160 from your company as payroll, and they’re going to apply for unemployment and get an additional amount up to the 275. So that’s another hundred and 15 bucks or so right? Just throwing these number and trying to remember this as I go, so bear with me, they’ll get the additional amount up to the 275 from the state, and then they get the $600 on top from the federal government while they’re part time working for you. So in this scenario, they get their full time Pay supported by unemployment, and they work 20 hours for you, you get a drastically reduced probably like 60 70% reduction in that person’s payroll cost and all of them that you do this to gets reduced drastically. So your financials look better, you save cash, you’re not throwing money at people that don’t have a lot to do they work the 20 hours for you, or however many hours that you need them, and they still get protected and pay so you protect your company, you protect your financials, you protect your cash, and like Justin talked about cash is oxygen, especially in this situation, you want to save a lot of it, and they still get paid, and you still have half of their hours to do all of their tasks. Just what am I missing here on this strategy?
Justin Jones 6:45
Um, I think we’d had an you would have had I mean, this is totally you know, you can’t really ask him to do it, but several people have even volunteered but prior to this like hey, if you need to not pay me for a month like like Like, that’s fine. And I’ll still help out. I think you had had some of the stories of like, where people were like, Hey, I’m only working 20. But if you need some extra work, I’m here to help. And then you know, so if you do have a little immediate demand, they’re still available to work while still they get to make the full benefit. So there’s some ways around that if you need a more than the part time deal. Um, a lot of people are just like, literally, we had two people. This is before we laid anybody off, I had two or three people. There’s like, hey, if I need to work for free for a month, I’ll do it. Yeah. And I’m like, I don’t think we need to go that route. And the second I think you get unemployment that was even before the $600 federal part where they, in many cases, some jobs, you can make more money on unemployment than working.
Micah Berg 7:41
Yeah. So it’s definitely
Justin Jones 7:42
way to preserve cash. Now, one of the questions I had, and this is one of those things, again, to reiterate, we’re not legal, we’re not financial consult with your attorney. Consult with your CPA. Yeah, your CPA, is that I ask you the question, man, that Sounds like maybe an idea that we can execute on if we need to if this goes out long enough, because everybody’s probably a little frustrated, like we are even applied for the PvP, even try, you know applied for the, you know the injury loan you’ve applied for other things and nothing’s happened and it’s being slower than we thought it would be. So you’re like, well, maybe I need to do another something to help preserve cash and make sure that I’m, you know, still solvent at the end of this. And we talked about, well, if you lay off more than 75% of your staff that you won’t be able to execute on making the PvP loan completely forgivable.
Micah Berg 8:40
Justin Jones 8:42
and I seem to agree with this. But once again, like the SBA, the people who are doing this are changing their tune every day. So like, even though they may agree with us right now, it may change tomorrow from the source sure is that you had said the way you understand it, but talking to some other people who should know Is that as long as you hire them back 75% or more of your people by the time that the loan closes, that you’re able to still use all that PvP money to make your payroll and still have it forgiven at the end, as long as they’re hired back before the close date? And then
Micah Berg 9:16
yeah, and that that’s written, I mean, that’s in the the guidance from, from the PPP loan paperwork that you can pull. So that’s not that’s not here say that the clock starts ticking the two and a half months. Plus 25%. I think offhand, but anyways, the 2.5 times your monthly payroll and contractor wages is what you’ll get in the TPP. And right there it says you know, that covers two and a half months worth of payroll from the date you get the funds or the date they close. And so that that to me means that two things one, maybe they don’t know how long this is going to take, right? Obviously they wouldn’t have put that allowance in Writing, they would have chose a certain date because they knew it happened fast. But obviously this is going to take some time. And you might as well start preserving cash. In the meantime, if you’ve been hanging on to your employees, banking on this PPP and you’re running out of cash, you kind of have no choice. And if you have some cash and you’re just burning it up trying to do the right thing, it’s actually not going to get reimbursed by the PvP because that clock doesn’t start ticking until afterwards. And so when you go to submit your paperwork, to say, hey, my PPP, I’ve met my requirements to get a deferred and you show them the last two, three weeks, four weeks of payroll and then you know, you closed and then you went another four weeks, they’re gonna say, No, that doesn’t count those first four weeks before the pay period don’t count. Now, will that actually happen? I don’t know. Will they go back and backdate it? God I hope so. Right for those of you that do keep on your employees and went through this, I would think they would. But if
Justin Jones 10:56
I’m not saying this for everybody But I would much rather get to the end of the PPP. Take all my stuff to the bank and they go, Well, this is not forgivable, why not? Well, because you hired your people back the day before you or a week before, and you lay them off during that timeframe. And the law says you can’t get it. Yeah, I’d much rather get to the end of this having a low interest loan that got me through, then to get to the end of this get the PPP and it not be enough to cover me because it took me everybody thought two to three weeks. Most of us can hang in there. Yeah. I don’t know that this is a two to three week process. No at all. So now you got to think about a six to eight week process to get funded. So you might want to think about this. Because the you know, the SBA is delaying this further, the banks are backlog the biggest banks in the world. It’s such a high demand that they can’t keep up.
Micah Berg 11:52
Yeah, and I mean, like you were saying, even if you don’t get your PPP forgiven completely You still have to operate under the assumption that one, you may not get it and to it, you’re going to take damages for how long and you really don’t know what those damages are yet, to what degree and so you have to do everything you would do. Even if the PPP wasn’t coming in. It’s kind of like, you know, I’m gonna pay too many taxes too much in taxes if I do XYZ with my property, right. And so you don’t sell your property so that you don’t have to pay the capital gains tax, and then 2008 happens your property’s worth half and you should have sold it paid the taxes, right. And so, you know, the theory there and investing is don’t let the tax tail wag the investment dog. This is saying, I mean, you’re running a business. So I know there’s hope with the PPP, but you’re not guaranteed to get it. I know that a lot of people assume that that’s a guarantee. But every day I turn around, it’s getting slower and longer and further. And, you know, so if you’re not getting anything you get it you should probably limit your expenses and most of your employees aren’t working full time anyway. So if they don’t lose money, the unemployment is guaranteed, and you only need them 10 to 20 hours, you should do this. There’s zero reason not to.
Justin Jones 13:11
I wouldn’t hundred percent agree and I would be operating until that happens. And if you’re never gonna get anything,
Micah Berg 13:19
oh, you have to Yeah. And if you get it great, get your loan, close, it comes in, you hire all your people back, you tell them everything’s fine, you got the loan, and hopefully, you know, it’s not even a guarantee that your business will fully recover over that 10 week period that the PPP covers. So you know, a lot of this is all on hope you need to save as much cash as you can right now, that’s kind of the point. I also learned, this might be helpful, and it varies bank to bank, because the SBA has delegated authority to local banks. So this is maybe it’s unique to me. But from what I understand, you can defer your closing on your PPP at least Little bit so you don’t have to take it the day they say it’s available, you can work out the day you want to sign all the paperwork and close. Once your approvals guaranteed you need to check with your bank. But hey, if it’s may 1, and your PPP gets approved, and you’ve got X dollars waiting on you, but you don’t have any bookings on the tape chart, you got nothing coming in, there’s no terms. You know, you could Yes, you could take the PPP that day higher all your people back there free, you’re still not making any money. What I would recommend do is try to defer or delay the closing a little bit later to when you know you’re going to have activity, then you pull in the PPP. And then you hire your people back and they go immediately to work and you’re generating revenue. What that does is now that you have money from payroll protection plan, because ppps dry my lips out, so I’m not going to say that a bunch of times. But anyways, you have that money from from that loan that’s going to get forgiven. So your payrolls covered for 10 weeks, which means if you start that period, when your revenue then goes back up, all of that money you would have spent on payroll goes to the bottom line. And so it literally becomes profit. So not only do you not owe this money back, but if you did this smart and you timed it well, and some of its going to be luck, you’re not going to be able to time it perfect. But all those weeks that you had full revenue, or at least recovering revenue, and no profit, your margin goes up. And so that money, literally because it’s a forgiving loan goes right to your bottom line. So not only are you recovering, and your normal course of business profits would have been great to get starting May or June or whenever we get to recover. But you also get your payroll for free, which is 30 40% of your expenses. I mean, it’s a big number, right? And so that’s going to be very valuable to tap into that. As soon as you can. I mean that doubles the recovery speed. I think that was kind of the plan for the PPP. When I think about why did they do such unemployment aggressive unemployment strategies with all this money, and they’re forgiving these loans to rehire people later. I think it’s because they know the only way you’re going to recover is if you don’t have pay back these loans and your margins come back or increase, then it kind of sorts itself out. I’m hoping that that’s what the math was. I don’t really know. But that’s the way it’s working in my brain and the way I’m looking at it.
Justin Jones 16:26
Yeah, and still, I’m a banker we were talking to today you’re on that call to Mike Of course, but the ah, as of today, the SBA is funded, not $1 to anyone. So if you’re watching this today, and it’s what is today,
Micah Berg 16:44
get April late, April 7, it’s day eight, it’s also 8pm. And you think my first phone call was sick? 6am. So it’s
Justin Jones 16:53
Tuesday 7:41pm they SBA is giving no money out. Yeah. So if you have if you’re watching this, and you you’ve applied haven’t got it as of now. You’re amongst everyone. Yeah. And they said maybe tomorrow, young people would start getting it and you’re in queue based on when you signed up is the theory. But I think there’s gonna be a longer process just because of sheer volume.
Micah Berg 17:19
So this This podcast was scattered and we’re sorry, like, the longer this stupid thing goes, the more tired we get. So we’re trying to help to summarize, run your business as if there were no guarantees because they’re not run your business as if you’re not getting these loans. Because you might well
Justin Jones 17:35
yeah, we’ve talked about this and other so I encourage people to go watch other podcasts Of course, but there’s some value information on this but when you get like sometimes I’ll get like scattered and be like, I don’t even know what’s going on. You know what weighs up? Yeah. Back to like a first principles thinking of here’s what I got to do. One is regardless of if I’m getting help or not, how would I operate my business and that’s a bonus. The other one is if I have an asset and marketing or anything Else that produces positive cash flow, you do not get rid of it. Ah, so and that’s in another podcast if you want to talk about marketing and all that kind of stuff, if you got people sitting idle doing nothing, regardless of economic times, they need to go. Yeah, job is to cut expenses faster than revenue. Yeah. So those are some anchors that when you’re, you know, scattered and float and want to grab onto something solid, those things apply, no matter what happens in the environment. Those are the things to go, I feel lost, I feel confused. What what assets can I cut that don’t produce cash?
Micah Berg 18:34
Yeah. And go back and watch. A few days ago, we did one on leadership and leading your people through this, because this is going to be confusing. So do your research, run your business as if these loans weren’t coming through, got to make the necessary cuts because if you’re like my business, your revenue went to zero more or less for April. And so you’ve gotta make these cuts quickly. But watch the leadership one. Simply condensing that means You got to talk to them. Don’t be afraid to have honest conversations about why you’re doing this, what your choices are, and that they’re not going to lose, most of them are going to make what they made before from you full time, or maybe a little bit more, some might take a pay cut, and you just say, look, it’s the best I can do. Thank God for the government helping us out on this particular scenario. And by doing this, we’re guaranteeing that we have a high probability to stay in business after this, which means, you know, if you’re playing the long game, as an employee, you’re going to stick around I’m never going to forget I really appreciate your help. And then keep in touch with them afterwards, you know, they’re going to be working for you 10 or 20 hours a week. You can say, hey, there’s all this stuff. You know, I can’t pay you anymore. Like I’m all out hours. Maybe they’ll volunteer right? they’ll stick around they just want to help they want to help your property stay in good shape, they want to communicate with the owners or you know, simple stuff cleaning up the the units or organizing something or or whatever. Just Just being around there. You A workspace and doing whatever work they have. It would be helpful. So, you know,
Justin Jones 20:05
let me hear your feedback on this real quick. So if we’re operating under the we have, we’re not going to get help, we’re not going to get a, you know, a life preserver kind of saving moment we need to operate our businesses if that’s not going to happen. How long would you do a we’re running some 13 week cash flow projection on on our end recommended clients do that. But how much cash reserves or you know, operating expense Would you like to have, you know, a good rule of thumb is three to six months of survival with no income. What do you think that should be in environments like right now? That you should be no, not that you achieve it? Maybe but you should be optimizing for?
Micah Berg 20:51
Yeah, I mean, most businesses barely have a couple of months of operating capital. Without cuts, if you’re making cuts Actually, Justin, you’re brilliant at this. I’ve heard your math and the way you think about some of the expenses you’ve cut versus your revenue losses and how it affects your profitability. I don’t think we have time to go into those numbers, I would say, you know, your goal is to have three months worth operating capital, and then pre allocate or pre determine expenses, you can cut right away. And this maybe doesn’t apply to COVID. Because maybe we’re a little past that time, and you made these cuts, but what you should learn from this is you’re probably not going to get a life preserver, you know, thrown at you by the government every time. And I’d honestly be surprised if this went as smoothly as as the government says, I mean, by the time you get the money, you may already be out of business that’s highly likely actually in many circles. And so I guess to answer your question, I would target at least three months. And then I would already if you don’t have that full cash operating cash flow, pre pre determined who gets cut what gets cut what happens are not necessary, which vendors you can delay or which ones will give you credit, those sort of things and just kind of run your your company through stress testing. Keith, what’s his last name? Cunningham again? Yeah, Keith Cunningham talks about this in his books where, you know, you stress test this stuff. And you talk about these scenarios, and you predetermine it. I mean, you should do that you should have a disaster plan. We’ve had a great one, because we’re on the Emerald coast beaches, Northwest Florida, there’s hurricanes. So literally hurt a big enough hurricane comes through, we’re shut down for three weeks, three months. And that’s just and it’s going to be right at the end of our season. And so it’s a really bad time because that’s when we generate most of our profits, like our our peak summer months actually pay for all the losses and then we make our money in those mediocre profit months in the fall. And so we have this disaster plan wrapped around this and you should in every business that you’re ever part of have at least three months to figure it out and know what you can cut and how quickly you can cut it and get on it and do that, in this scenario, stop hoping that you’re going to get the loans and the SBA and the PPP and all that stuff, and banking on that, because it could take a really long time. And if you run out of cash before then, I mean, good luck sticking in business, you know, I mean, at some point you’re going to lose, or enough people are going to hate you because you didn’t pay him or you know, there’s who knows who knows what will happen. But don’t risk that when you have an easy out. And your easy out today is you can if your workloads cut down, cut the hours of your staff cut their pay, so they’re making less than the state unemployment rate, and they will actually get all of their pay, be very happy with you and you’ll save 6070 80% of your payroll costs over the next few months. And that could be what saves you could be the difference between success and failure in this environment. And that’s important. You got to stick it around, stick around stay in business. Got anything left Justin. All right guys. So
Justin Jones 23:58
this will be different tomorrow.
Micah Berg 24:00
Yeah, I’ll be different. Sorry, this one was, you know, a little bit scattered. This is muddy information and we’re trying to, as you can tell, unedited, 8pm. Like we work all day. And we try to figure these things out for you guys based on what we’re doing. So my apologies, they’re less than professional sometimes and, and a little bit scattered, unedited. But we got to get this information out. Got to get it to you. We’re going to keep it up. We’ll see you tomorrow. We got another couple of updates planned that we’re researching now and we’ll try to keep them relevant. So stick with us. Thanks for your time, Justin. Thanks for meeting with me. And we’ll see you guys