Whether you operate a brick-and-mortar business or work as an independent contractor, if your income has been impacted by COVID-19, you should be keeping records. As the coronavirus pandemic continues to shutter small businesses, dry up freelancers’ earnings, and leave millions of Americans without jobs, the federal relief offered so far may not be enough. If you are seeking alternate funding or considering a business interruption insurance claim, you may need documentation to prove that any claimed losses were caused by COVID-19 and not the result of a dwindling, or otherwise unsuccessful venture. We’ve compiled answers to a few questions that you may have.
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Why would I need to document lost income?
Losing business income is not as straightforward as losing a job, where you can file for unemployment and your benefit is based on your former wage and the limits set by your state. Every business cash flow is unique and freelance work can be unpredictable, which makes filing for unemployment or submitting other loss claims a challenge.
In order to prove that your loss of business income is due to the pandemic, it can help to have documentation from any existing clients or prospects explicitly stating that their need for your services has diminished due to the virus. If you have made or received a Force Majeure Notice or a Notice of Contract Termination, it can be helpful to keep these on hand, as well.
Aside from the above, it is important to document business losses under normal circumstances, as well—since you can typically deduct net operating losses when filing taxes. An accountant or CPA can help you understand what your options are in that arena.
How do I document business losses?
It is easiest to start with what can be proven. For instance, did you have a gig canceled due to social distancing orders? The pay you expected to receive for this gig could be characterized as a quantifiable loss. If the organizer decided to pay you to deliver your services online, you may still have non-refundable travel expenses. Although you might receive a credit for the travel, you should still document all of your non-refundable expenses, even if you don’t lose income.
If you experienced a decrease in hours from a client who was impacted by COVID-19, you should also document this loss—with a calculation based on what the client typically paid you. This type of loss can be harder to prove for more sporadic clients, but if you have a regular client who typically places a certain volume of orders every month and they’ve slowed down significantly, make a note of it.
Businesses with more regularity to their cash flow, such as small retail shops and restaurants, must look to their prior accounting records to help prove that coronavirus lockdowns caused a major business stoppage. Make note of your revenue in prior months, payroll expenses, rent, and any other necessities that keep your business running. Having all of this information organized in one place can be helpful if you plan to apply for additional aid or file insurance claims.
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As you navigate this unprecedented time, Rocket Lawyer is here to help. Get free access to a selection of relevant legal documents or ask a lawyer a question in our Coronavirus Legal Center for Business.