With case numbers rising across numerous states in the US, many have started to question what the long-term effects of COVID will be on small businesses. Here in Illinois, small businesses have just now started to partially open. If we have a second spike, as many experts are predicting and the data is suggesting, how will that affect these businesses that have already been hit?
Small Business Data
Reliable data on small business is hard to come by. I don’t know of any groups collecting and analyzing data in real-time. The data that is available is frequently not as useful as it appears. For example, some sources list small businesses as any business with less than 500 employees. That’s obviously far from small.
There is plenty of anecdotal evidence about what businesses are going through. As a manager of a firm that primarily works with small businesses, I have many stories from clients about their operational health. But that data is very specific to the company’s location and area of work. Data that covers broad swaths of American small business is tricky to find.
However, the US Chamber of Commerce recently published a poll of small businesses that appears to have good data backing it up. I have no idea what the US Chamber of Commerce is. ‘Chamber of Commerce’ is usually a title for a local community of businesses, it’s not a common title for a national organization. Given that, I believe the US Chamber of Commerce is a private company or an association of companies. In any case, you can see their original report here.
Their data was interesting. They reported that 41% of small businesses are fully open and 38% are partially open. About 19% of small businesses are temporarily closed, and 1% are permanently closed. Who is the 1% that took the survey despite their business being closed? I suspect that number may be underrepresented.
The report stated that 43% of business owners are ‘very concerned’ about the impact of COVID, which was down from 53% in May. Also, 53% of small businesses reported good overall health. In fact, 24% of business owners went so far as to say that the US economy was ‘good.’
This is touted by the article as a good sign, but I suggest that the reverse of that stat is that 76% of small businesses reported that the US economy was not good. And, by the way, economists would agree. The stock market may be doing well, but the market is not the only indication of a stable, healthy economy.
Another fascinating stat, 50% of business owners expect next year’s revenues to increase and 19% expect them to decrease. These numbers are slightly more positive than in May, but consider what is being said. Fifty percent think revenue in 2021 will increase. Notice, we aren’t talking about 2020. Given how bad 2020 has been for small business, how is it that 100% don’t think next year will be better? I find that stat concerning.
The fact is that these stats are not positive. Most business owners are legitimately concerned about this year and next, and that is without a second spike of cases occurring this fall (or right now).
Businesses Were Struggling Before COVID
NBC recently reported that a study involving 1.4 million small urban businesses done by JPMorgan Chase Institute found that nearly 29% of businesses were not profitable. That was as of September 2019. That study also found that nearly half of those businesses surveyed had no more than two weeks of cash on hand (article).
The fact is that many small businesses were failing before COVID hit, the pandemic simply sped up the process.
Now, even in the wake of the stay-at-home orders being lifted, many businesses don’t believe they can afford to carry on with normal operations. According to a LendingTree survey of 1,260 small businesses, approximately half of small businesses fear that they can’t reopen.
I have been saying this for weeks. The economy is not a light switch. Flipping it on does not guarantee demand for services. Businesses cannot operate at 50% or 25%, they don’t have the margins to survive such a downturn. Even if the stay-at-home orders are lifted, these businesses may not make it.
Business May Shift from Small Businesses to Larger Businesses
An article by The Washington Post considered what they called ‘micro-firms,’ or businesses with fewer than 10 employees (article). They interviewed Mark Zandi, chief economist for Moody’s Analytics, and he said that he wouldn’t be surprised if over 1 million micro-firms ultimately fail due to COVID. Given that there are approximately 30 million small businesses in the US, that would be about 3% of all small businesses. That’s about 30,000 businesses here in Illinois.
But something else to consider, those small businesses frequently transact with other small businesses. That means that when some go under there may be ripples in the small business community.
Large businesses will have a better chance at survival because they are more likely to have cash reserves and be able to borrow money. In fact, the Federal Reserve has made borrowing money easier than ever. Therefore, we may see a shift in our economy away from small businesses and towards larger businesses. I don’t know what that means for customers, but as a small business owner, I believe the movement away from small, local business would be a tremendous loss.
What Happens When We See a Second Spike in COVID?
I don’t see how the numbers could get better if we see a second spike. Businesses that are close to shuttering would almost certainly close. Continued unemployment would mean less demand for products and services offered by these small businesses, which could lead to even more closures.
Business will come back, that’s the beauty of the market, but this current crop of small businesses may see extremely high attrition rates. Time will tell how these closures will ripple out. Will we see impacts on commercial landlords? What about tax revenues?
I expect that this gets much worse before it gets better.