Episode 54: How To Spend Your PPP Money


Government aid must be spent properly to avoid penalties. Discover the right way to allocate government money that will keep your business running today and for many months to come. This is part 2 of Tom’s PPP series.


01:18 – What Is The Purpose Of PPP? 

02:51 – How Is Payroll Defined?

03:16 – What Is The 75/25 Rule?

09:58 – How Does Payroll Change Under PPP Guidelines?

14:07 – Should You Spend All Of Your PPP Funds?



This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.


Tom Wheelwright:       

Welcome to The WealthAbility® Show where we’re always discovering how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright your host, founder, and CEO of WealthAbility®. So let’s say you’re one of the lucky ones, and there’s hundreds of thousands of you out there that are lucky ones, who have received your PPP money, your paycheck protection program loan or you’re just getting it. What do you do with it?


Today, you’re going to discover step-by-step how to spend the money, what to do with the money, so that you can make sure that you don’t have this loan outstanding at the end of this eight week period that we have. So the CARES Act of course gave us some funding for this paycheck protection program, which was primarily to keep employees on payroll, right? Is to allow employers who might otherwise have to lay people off to keep employees on payroll.


Now, interestingly enough, it applied to franchises and actually some public companies, and so, about 25% of the money in the first round anyway, went to 2% of the applicants who received money in the first round. That was a lot of money to a lot of big players. Okay, now we have some of the smaller players getting some money. We have clients who’ve received money. And so, what do you do with that money?


Now, remember what you’ve received was basically two and a half months of salary and commissions and retirement and healthcare costs, right? That’s what you received. Now, you have eight weeks to spend this money. How are you going to spend this money? Well, first of all, what we have to understand is that the SBA has written regulations on this and while the SBA is an administrative section of the government and not the lawmakers, under the CARES Act, they were directed to create some law for this.


They were directed to create legislation. So whatever they say pretty much goes. And so, one of the things they said was, look, 75% of the money you spend has to be on payroll. It has to be on payroll. Now, payroll is very broadly defined, okay? Payroll includes your healthcare costs. Payroll includes commissions that you’ve paid. So it’s a fairly broadly defined definition. So understand, that it’s not just the amount of pay that went out, right? It includes the employees share of social security, right? It includes everything. Basically, you paid the employee.


Now, what do you get forgiven? We don’t have regulations outside of the 75/25 rule. We don’t have regulations yet from treasury or from the SBA on what they’re going to forgive. But let’s walk through the law, plus we’ll add in the 75/25 rule. So the general rule is, that you have to spend the money over eight weeks from the time you received the loan. Okay? So you need to … You start out by documenting when you received the loan. Now you have an eight week period.


Now, the rule is, that you can spend it on several things. You can spend it on payroll obviously, you could spend it all on payroll. You could also spend it on utilities, you can spend it on rent, and you can spend it on … You can actually pay interest on loans. Now, the interest on loans, rent, utilities, that can only make up 25% of the total that’s forgiven. So an easy way to remember this is, your utilities, rent, interest cannot be more than one third of your payroll costs. It can not be more than one third of your payroll costs. If you run the math, that’s how it works out. Okay? 25% of 75%, one-third. So the way to look at this is, let’s map out … To begin with, let’s map out your regular payroll costs. Okay?


What would you normally do when you’ve got a 401(k) match, you’ve got your actual payroll, and you’ve got your healthcare costs. Okay, so let’s map that out. What would that normally be for the next eight weeks? Now this is, interestingly enough, it doesn’t matter when the employees were hired. So you literally could hire the employees in the middle of that eight weeks. That’s okay. What you can’t do, is you can’t pay yourself a big bump in salary. Remember there’s this $10,000 a month rule anyway, I’m sorry, a hundred thousand dollars a year rule anyway, that you have to maintain.


So let’s say that you have $100,000 in regular salary. Now you’re probably going to have another $10,000 in, I’ll say $5,000 in health insurance, and let’s say you get another $5,000 in 401(k) match, et cetera. So you’ve got $110,000, right? Now, of that, a third of that, you can also apply rent, utilities, and part of your interest and your mortgage or your mortgage interest. It’s kind of an either or thing, right? So, okay, let’s say that you’ve got utilities of $10,000, $5,000, let’s say you’ve got utilities of $5,000. Let’s say that you’ve got rent for those two months on a hundred thousand dollars payroll. Let’s say you’ve got rent of $15,000, so you got $20,000 between rent and utilities, okay?


So that $20,000, is that less than a third of 110,000, the answer’s yes. So you’re fine. Okay. You’re absolutely fine. Now, let’s say that you have a restaurant and you have huge rent, okay? Huge rent. And you don’t really want to bring all your employees back. Now you have to be a little careful about this because you have to make sure that you’re matching up your 75/25 rule. All right?


Now, what can you pay in that 75%? For example, could you just bring back your management? Okay, so I know of a restaurant, that in order to take care of this, what they’ve done is they decided, well, we’re going to bring back management and we’re going to have them do things like repairs. We’re going to do upkeep. We’re having them do things. Well, they’re the higher paid people and they’re kind of your key personnel. And so, they decided to bring them back on. Okay. But they still have a lot of rent and they still have a lot of utilities. Restaurants tend to have a lot of utilities, so even when they’re just open for takeout, right?


Again, what you’re going to do, is you’re going to come up with what that 25% is and then you’re going to back into it and make sure that you use up, you want to use this up because yes, it’s a loan, it’s a two year loan. The first six months is deferred. It’s only 1% interest. But if you could have it forgiven and you could spend it on useful things, why wouldn’t you do that? Why wouldn’t you do that?


Okay? What we’ve done at WealthAbility®, is we’ve actually created a spreadsheet and if you want to call into WealthAbility®, go schedule a call on wealthability.com. We’ll actually, we’ll get you this spreadsheet. Okay? I want to make sure that it’s easy for everybody to do and we’ll get you this spreadsheet. You just go to wealthability.com/schedule call and we’ll get you this spreadsheet.


So it’s pretty much that simple, I think. I don’t think it’s as complicated as people say it is. Just remember that, that one third rule. Okay? One third of the payroll can be basically utilities and rent, okay? One third of the payroll can be utilities, rent or utilities and mortgage. Okay? One third of the payroll, or 25% of the total. That’s the same thing, right? One third of the payroll or one fourth of the total. And when you run through that calculation, then you need to start making some decisions. You go, okay, should I bring some people back? Now, what about could I pay bonuses? Could I pay bonuses? And the answer is, yes you can. You can pay bonuses.


Now again, it’s up to $100,000 a year annual salary, right? But you can pay bonuses. Now, what about when do you pay it? Here’s the issue. So let’s say that you get your … Let’s say you pay your people twice a month, okay? You pay them on the first and the 15th, right? Of the month. And let’s say that you get your money on the seventh, okay? Let’s say you get your money on May 7th for example. Okay. Now, you’re going to have a pay period on May 15th, it’s going to be your first one, but that is for payroll prior to May 7th right?


Let’s say you pay people in arrears, right? Most people don’t pay ahead of time. You pay in arrears. So you pay on May 15th, June 1st. Right? June 15th and then you’re going to pay on July 1st, right? So that’s four pay periods within that eight week period, right? Because then your next one is going to be July 15th and that will be beyond that eight week period. Okay. Following me so far? All right, so that means you have four pay periods. Well, do you get to include all four of those pay periods? Is that the exact number? And the answer is no.


According to the law, the answer is no. Now we don’t know. We don’t have regulations yet if they’ll change that. But the way the law is written, it says, that I get what’s accrued and paid. Okay? Earned and paid. All right? So I would get the payroll from five, seven, May 7th to May 15th, I would get it from May, basically May 16th to June 1st. From June 1st to June 15th and from June 15th, basically to July and I don’t know what, eight weeks exactly is there.


So here’s the thing, let’s say that, now I’ve actually paid more than eight weeks worth. Okay? So do I get it all? And according to the rules? No. Now what if you go the opposite direction? Let’s say that you get your money on May 16th then you’d have your first payroll on June 1st. You’d have another payroll on June 15th. Another payroll on July 1st but then your next payroll would be July 15th. However, that’s more than eight weeks away.


So what you’re going to have to do, is you’re going to have to make a special payroll, exactly eight weeks to the day, according to the law. Okay? Now, regulations may come out and tell us differently, but according to the law, you have to make a payment on the final day of that eight week period. So you’ll need to work with your payroll company to make sure that that is set up properly. Now, you’re going to make that payroll. Okay? Now, what about retirement?


Normally you would pay … Typically, you don’t fund your retirement until the end of the year and you may even fund it after the end of the year. Okay. Let’s say it’s not a straight 401(k) match. Let’s say it’s a pension plan or let’s say it’s a profit sharing plan. This goes with the bonuses. Then what you need to do is, you’re going to have to put some money in and you’re going to have to talk to your plan administrator about how much money to put in for that eight week period, if you want to maximize the amount of payroll because that’s included in payroll.


So there are some details here to pay attention to. I would suggest you sit down with your CPA and walk through this. Again, if you would like the spreadsheet from WealthAbility®, please go ahead and schedule a call with us and we’ll get you that spreadsheet, wealthability.com/schedule call and we’re happy to get you that spreadsheet. Okay? I want to I want to make it easy for everybody. We’ll just get it out there. What I’m hoping to do is actually put it on our up on our website, but in the meantime we’ll go ahead and give it to you when you schedule a call. Okay.


And so, remember when you use all your PPP, the idea is not just use it up, right? The idea is to use it for things that will be productive. Remember, all expenses should create income and all income should create cashflow. So don’t do anything that’s not going to create income. Even though it’s money that the government is paying you to do, you don’t want to just waste that money. Now is a real opportunity to use some government provided funding, to do something good for your business. Like my friend who owns the restaurant and he’s really getting it put in great shape, so that when he’s able to open up all the way, guess what? He’s going to be ready.


So I would hope … My hope for you is, be ready. Get ready for when we do open back up because it looks like it’s coming sooner than I thought it would. And make sure that you’re looking at the long term here. Okay? Make sure that you’re adjusting to this with the idea that, look, it’s going to change again. Could we have another shutdown? Absolutely. Could we be in stay at home mode again in the fall or even again the summer? We don’t know. So we want to make sure our businesses are as flexible as possible. So things that you’ve done already, keep doing them.


Keep looking at how do I make my business stronger? The really successful businesses in the good times, the really successful ones, are the ones who are successful during the bad times. So when you’re successful in the bad times, when you’re always understanding, that every expense should be producing income and all income should be producing cashflow. Now, if you like what you’ve heard here, please, please, please, please give us a review.


Go online, give us a review, tell us you loved it and tell us what you think. We want your feedback. We really do want your feedback. And this is my first time recording this video wise, so I’d love to have your feedback on that too, because all this is about, is how to help people make way more money, pay way less taxes, and have a way better life. I’ll see you next time.



You’ve been listening to The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes. To learn more, go to wealthability.com.


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