As Featured in Accounting Today

In some ways, the impact of the coronavirus is universal, but a surprising number of industries face very specific and unique problems. Fortunately, they have specialized CPAs and accountants to give them advice and help that is specific to their situations. Here, four accounting firms share the problems their clients are facing — and the advice they’re giving them — in four niches: grocery stores, restaurants, religious organizations, and aviation. Our very own, Jason Melillo, was interviewed by Accounting Today for his expertise in the grocery industry.

Plexiglass and supply chains

With grocery stores and their workers on the frontlines of the pandemic, myriad issues have arisen for an industry that, while often limiting hours and taking new precautions, has had to remain open to serve the public.

These challenges fall into a few broad categories, according to Jason Melillo, a principal at Southern California-based KROST CPAs, where he is an expert in the firm’s grocery industry niche. KROST serves “a handful” of middle-market grocery stores in the southern California region and one larger, privately held grocery chain.

Personnel implications are of major concern, Melillo reports, as grocery employees were categorized as essential workers who now risk their health on the job. “The personnel issues [include] making sure that people feel safe, the employees feel safe,” he said. “They’re getting exposed to a whole lot of people; it’s a concern — to make sure they are compensated accordingly, and measures are being taken to protect them.”

One of these measures, utilized by at least one grocery chain Melillo has been in contact with, is installing plexiglass dividers between cashiers and customers in the checkout lanes.

“There are a lot of challenges they are dealing with — shorter hours so it’s easier to manage, making sure customers are following instructions and maintaining physical distance,” he continued. “Time and money is spent on sanitizing, keeping things clean. Grocery stores [already] spend a lot of time and money to sanitize, and now it’s that much more.”

“Personnel need protective equipment, sufficient masks for employees,” he explained. “One issue is, if it affects the supply chain for grocery cart wipes, one chain is going to be out completely within the week. There’s nothing to really do. You can’t go to another supplier — no one has them. One of the people I’ve been talking to has been coordinating with the [Centers for Disease Control] for alternatives to safely sanitize shopping carts.”

Also coming into play for the industry is the Families First Coronavirus Response Act, which requires certain employers to provide sick leave or expanded family and medical leave for specified reasons related to COVID-19, offering tax credits in return. But as the FFCRA only applies to certain public employers and private employers with fewer than 500 employees, Melillo pointed out that many grocery companies are too large to qualify.

“The discussion we are having with clients — older employees are in the higher risk groups; many of them don’t feel safe,” Melillo shared. “Certainly a lot of people in professions or different socioeconomic positions can afford to stay at home, where other people might feel, ‘OK, FFCRA provides some benefits to me, so maybe I’ll stay home, because I’m high risk and don’t feel safe, or maybe I’m caring for someone home from school.’ FFCRA provides some help to the employee, gives them an option that a lot of employers don’t have. If you have more than 500 employees, you don’t have the benefit to get the credit to offset it; it’s out of pocket to them.”

With their larger size often comes a wider geographic footprint and even more complexity. “Another of the big issues is bigger companies in multiple jurisdictions are dealing with all the different ordinances put into place to deal with employees’ sick pay. On the compliance side of it, all new ordinances are put into place that are not congruent with each other.”

However, Melillo explained, as legislation is rapidly changing, assistance for larger companies could be on the horizon. “On [April 10] a new loan program was issued for employers of up to 10,000, [giving] access to people in the grocery industry with more than 500 — there are a lot in that 500 and up [category] in the grocery business. That’s going to provide some help, access to loan funds.”

Another operational challenge has arisen in the wake of large food processing plants closing due to sick employees. “The supply chain is an issue for a lot of people now, with the potential of new supply chain issues. Food processing plants are going offline. One pork processing plant [Smithfield], representing 5 percent of production to the U.S., is shut down for 14 days. Is that the only one that’s going to happen to, or the first one?”

With the pace of change so rapid, client communication is key, Melillo said. “We’re talking to clients on a regular basis — reaching out, finding out anything on support. A lot of information was released in the last two weeks; that’s why we released our [online COVID-19] resource center. We’re updating it multiple times a day. There is a lot of big, huge stimulus packages, that apply to lots of people with unique aspects that they probably couldn’t think through.”

Even given all these complications, Melillo emphasized, the grocery industry benefits from its rare position. “As difficult as it has been, [the industry] is maybe one of the lucky ones; it’s hiring people,” he said. “You look at the hotel and restaurant industry, [coronavirus] has decimated them. There are challenges, but at least they are able to be in business and operate.” — Danielle Lee

Making lemonade

Very quickly, restaurants across the United States have had to either switch to delivery- and takeout-only or shut down completely until the pandemic subsides. It feels like the restaurant industry might be in great peril, but this feeling might be exaggerated, as are most things these days. The reality is, at least for now, that many restaurants are actually adapting quickly and are managing this new reality better than expected.

BDO’s restaurant practice serves large chains as well as smaller local restaurants across the U.S. Tax partner and co-lead for the practice Lisa Haffer said that some restaurants have proven themselves to be well prepared for this new reality by nature of their regular business being primarily delivery to begin with, like pizza parlors. It’s the fine-dining establishments, she said, that are having a harder time retaining customers and adapting their processes to a delivery-centered approach.

“The logistics change if you’re carry-out and delivery only,” Haffer said. “The whole service model changes. Now you don’t need servers — you need kitchen workers to crank out food. If they’re nimble, they have fared well.”

Liquidity is the primary goal of restaurant owners right now, as they put their heads down and try to pay their inevitable bills, such as rent. But the secondary goal has been to take care of their employees. Restaurants tend to view their employees like family, more so than other types of businesses, Haffer said. Because of this, the fealty to employees by restaurant employers is strong.

“Many of my clients’ secondary goal is to make sure their employees are taken care of, whether they’re paying full wages, or they’re furloughed and companies are covering health care, or they’re perhaps setting up an employee relief fund,” Haffer said. “I think the hospitality nature of the industry — the camaraderie, the evening hours — lends itself to much more of a family feeling.”

Governmental programs like the Paycheck Protection Program and the Economic Injury Disaster Loan program are options for restaurants to fulfill the goal of taking care of their employees, but the initial tranche of funds rapidly ran out, and restaurants are seeking other options to provide for their employees. WeFunder, for example, an equity crowdfunding platform for startups, has been used by some restaurants to fill the gap.

BDO accountants have been on the phone with their restaurant clients a lot in recent weeks, Haffer said, providing consulting and helping them make decisions. Should they take a loan? Should they take payroll credit instead? Should they lay employees off? The consulting aspect of BDO’s services has taken the front seat as restaurants struggle with these big, difficult questions — at a time when taxes would usually take precedence. “Nobody wants to talk about tax returns,” Haffer said. “Our typical busy season will be pushed to June and July.”

For the clients that have been able to secure a loan, the first vendors they say they want to pay are their lawyers and accountants, Haffer said, which has been a nice surprise for BDO. “We’re in the trenches with them,” she said. “We’re rolling up our sleeves.”

It’s unlikely, Haffer said, that after this pandemic, restaurants will change their nature and become more conservative in their business modeling. “But I think people will start thinking out of the box as far as their business model goes,” she said. “As they go forward, they’ll think about what they can do differently to be able to take their core restaurant and be able to make lemonade during a future crisis. Like how to be more nimble.” — Ranica Arrowsmith

Empty pews

As businesses and nonprofits alike are all feeling the financial crunch of the ongoing coronavirus pandemic, religious organizations are no exception. With social distancing keeping most gathering places closed, it is having a significant impact on their financial stability.

Indiana-based accounting firm CapinCrouse has developed a Church Financial Health Index to keep track of religious organizations’ financial information. The online dashboard, consisting of key measures, benchmarks and peer information, shows that the average church receives 48 percent of contributions via online giving, according to Rob Faulk, lead partner for the firm’s church and denomination practice: “That leaves 52 percent received from mail-in and in-person (weekend) services. Churches and nonprofits may actually see their revenue needs increase due to the addition of services to meet community needs. Historically, we’ve seen giving to nonprofits and churches decline significantly during recessions. So, even if a church can adjust and make up some of that gap, they could still see a significant decline in contributions.”

The Church Financial Health Index also found that the typical church has 97 days of operating cash reserves and $2,449 of debt per adult attendee. “There are 4 S’s that keep church leaders up at night: sustainability, succession, structure and security,” stated Ken Tan, a CapinCrouse consulting principal. “Church leaders … are wondering how they will address sustainability and are taking a hard look at security issues, such as the ability to accept online donations. That’s not to mention the challenge of talking about giving in the midst of turmoil.”

Despite the tough situation they find themselves in, there are immediate steps church leaders can take to alleviate some of the current financial pressure. One of the first is to rely on resources that they might already have. “This is a time for churches to use their cash reserves, if they have them,” said Stan Reiff, professional practice leader for CapinCrouse’s consulting practice, in a statement. “If they don’t have reserves, look at programs that are not being implemented because of the current situation and adjust resources accordingly. Start creating cash lists. For example, if your church building isn’t being used right now, utility bills are likely to be lower, saving some cash. If ministries have a note, I’d encourage them to check with their bank to perhaps extend the loan.”

Church leaders without cash reserves may want to turn to two programs in the passed CARES Act: Economic Injury Disaster Loans and the Paycheck Protection Program. In early April, CapinCrouse hosted a webinar to dive deeper into these two loans and what exactly they entail. The firm reminded viewers to consult with legal counsel before applying for either loan, as hiring any employees “unwilling to subscribe to the organization’s statement of faith or comply with its code of conduct” would conflict with Title VII of the Civil Rights Act. — Sean McCabe

Different elevations

Top 100 Firm Berkowitz Pollack Brant is finding that even within the one industry of aviation, where the firm serves four clients, the effect of the coronavirus pandemic has varied widely.

The hardest-hit client has been a concierge company that caters to high-net-worth individuals, shared Karen Lake, associate director of tax and leader of the firm’s SALT practice, who is very involved with the aviation team. “At the far extreme is a company in the aviation business, a concierge aircraft [business] that provides fueling, catering … Their business dropped down to a few medical, military evacuations,” she shared. “Now they only have 5 percent of what they had before. We have seen on both ends of the spectrum how it is affecting businesses and business models.”

At the other end of that range is a large freight company that has seen its business grow. The company has contracts with common carriers and the military to ship cargo domestically and internationally. “The military hasn’t really stepped off what they are shipping to bases,” Lake explained. “And they’ve seen an uptick in their working with common carriers. Carrying with Amazon has seen an uptick.”

The firm has worked to keep all of its aviation clients abreast of the latest developments in the CARES Act, the most pressing of which is relief for air carriers from federal excise taxes that apply to transporting passengers and cargo and the purchase of aviation jet fuel, Lake explained. “We got ahold of them right away,” she said. “The invoices being sent out, those services are no longer subject to federal excise tax, so they no longer need to be paying. That was the first thing we did … In some cases they file [their taxes], in some cases we do. There is so much going on with the CARES Act, there are new updates and frequently asked questions every night, that we have to clarify and add to.”

The CARES Act also included a $25 billion bailout for the airline industry. In addition to the concierge and cargo company, BPB’s two other aviation industry clients provide fueling services. Those companies have seen a significant decline in flights they are servicing, following the ban on international travel and significant reductions to domestic travel. “Where they used to have 100 flights, they now have two,” Lake shared.

In response to the pandemic, BPB assembled a COVID-19 team of 30 professionals across the firm’s service lines that meets daily over the phone. “[Legislation] is changing every five minutes,” explained Melissa Gracey, BPB’s director of marketing. “They have a call every day, for one to three hours … There are so many applications, so many unformed, gray areas, that the application is depending on client, industry, size, and is complicated.”

“The team has looked at and pulled apart all of the CARES Act, looked at it in detail before going to clients [and explaining], ‘This applies to you specifically,’” shared Lake. Specifically, the firm’s aviation team has been looking into the act’s Payroll Support to Air Carriers and Contractors Program, Lake reported. “We are looking at payroll support for aircraft carriers, contractors, to get money in place, keep employees working, keep them on the payroll.”

As at least two of BPB’s clients are seeking relief from that program, Lake stressed the need to maintain consistent communication: “The program provides money for a significant period of time, so we are just following up with them. There are always updates on this; we don’t know what Congress, the legislature, the president are going to do going forward.” — Danielle Lee