Jason Blumer here with Blumer CPAs. As we work with creative services companies all over the US and the world, we’re learning basically that the PPP money in the US is really confusing people. It’s what people were saying is kicking the can down the road. Just to talk about what that means real quick, if you look at your profit and loss statement that shows revenue in from clients and all expenses out, and then the resulting net calculation of profit or loss, and for services company, the expenses portion, the labor portion of the expenses is the largest portion. Most people know that. It’s up to 50% or higher, if you add in your contractors, could be higher than 50%. Labor is a huge cost. This PPP money is offsetting that one expense, the labor.
And so, what these financial statements are showing is that the revenue in minus the labor and expenses out may not be an accurate depiction of what happened, right? And in fact, it’s not, if you have PPP money, because you may show a loss in a certain period of a profit and loss statement, when really, that loss is made up of labor that was expended, but you spent somebody else’s cash for that expense. And so, what you could be looking at is, for healthy companies, you actually could be looking at a profit that really is higher, right? Because if you’re a healthy company and you have profit 10% or higher, basically what you’re showing is expenses that were covered by somebody else, the government in this case, and so your profit may actually be higher, because your profit’s compared to the revenue from your clients.
Now, if you’re an unhealthy creative services company and you have a loss, the loss could even be greater than what you’re looking at, because again, the labor is part of the expense in that loss, and if the government’s covered some of that labor, then your loss may even be greater. And we just want to let you know that if you’re an unhealthy company coming into the pandemic, you may still be making those unhealthy decisions, and so you may not have fixed efficient labor problems with capacity management, pricing and lead management and marketing strategy problems for that top-line revenue. These are things you still may not have fixed, and you know what, you’re going to have to fix them. The PPP money is just… It’s a little bit of a bandaid for a small period of time. And so, we’re trying to let people know the struggles you’re having are ones you still have to fix after the PPP money is all used up.
So, keep that in mind. We don’t want you to be thrown after the PPP money is used. You still need clients, and you need to make sure you have a right labor strategy for the clients you’re serving. We hope that helps. Let us know. You can email us at [email protected] if you need any help figuring any of these metrics out. Thanks so much, take care.