By Cory Phare
It’s an understatement to say small businesses are an anchor of the U.S. economy.
In normal times, small businesses make up about 44% of the U.S. economy and about half of our workforce even while 18% of those businesses nationally employ fewer than 20 workers. In Colorado, small businesses employ more than 1.1 million people.
But these aren’t normal times. As the COVID-19 pandemic wreaks havoc on local, state and national economies, many small businesses are in serious danger of going under. While the federal government responds with massive aid packages and Colorado slowly reopens from its stay-at-home order, Main Street needs to understand the macro and micro movements, say Metropolitan State University of Denver economists and management experts.
“Small businesses have a huge impact – not only on the overall economy, but they’re where so many of our innovative and cutting-edge ideas come from,” said Lynn Hoffman, professor of management at MSU Denver. “They’re the engine of our economy. If they die, so does our future growth.”
In March, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, a $2.2 trillion stimulus package that carved out $349 billion to create a Paycheck Protection Program, which would help businesses keep their workforce employed during the crisis. A follow-up $484 billion coronavirus aid deal signed April 24 promised additional funding for the PPP and Economic Injury Disaster Loans, which would in turn pump hundreds of billions of dollars into devastated small businesses.
But the federal Small Business Administration found itself overwhelmed by the rush for loans, and billions meant for small businesses frequently wound up in coffers of not-at-all-small businesses such as Shake Shack, Ruth’s Chris Steakhouse and Potbelly Sandwiches.
While America’s economic engines wait for federal aid to work for them, their employees suffer; Americans have filed more than 26 million jobless claims since the onset of the COVID-19 pandemic. In April, private-sector companies shed 20.2 million jobs, according to data from Automatic Data Processing Inc. Small employers – those with one to 49 workers – lost 6 million jobs.
“The Great Depression happened over four years as a slower decay,” said Kishore Kulkarni, professor of economics at MSU Denver. “This has been four weeks – we’ve fallen off a cliff.”
Though federal aid is necessary to buoy businesses in a crisis, Kulkarni said, the federal response has been patchwork and the situation requires a long-term fix. The two small-business relief bills total nearly $3 trillion, compared with the pre-coronavirus government annual expenditure of $4 trillion, he said. The explosion in deficit spending drives up debt and could trigger a rapid onset of inflation.
“It’s only effective in the short run,” he said. “The challenge is that we don’t know how long the virus will be around, and we can’t keep just doing this; there are limitations to the tools we have at our disposal."
As policymakers grapple with macro-level responses and Colorado begins phasing in its Safer-at-Home approach to reopening parts of the economy, small businesses still have some tools at their disposal, Hoffman said.
First, small businesses need to minimize expenses and maximize liquidity as much as possible – “Cash is king,” he said.
“When the COVID-19 pandemic hit, you saw Fortune 500 companies drawing down their credit lines to have cash on hand,” Hoffman said. “The problem is that most small-business owners don’t have that luxury. The question then becomes, ‘How do I operate my business efficiently enough to maintain social distancing?’”
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The recovery will likely vary by sector, too, Hoffman said. Technology and professional services conducive to remote work are best suited to rebound the quickest, while those such as tourism and hospitality are in for a longer road.
When it comes to cost-cutting, Hoffman says to start with monthly recurring expenditures and negotiate with everyone as much as possible – landlords, banks and creditors included.
Likewise, tap all available aid. For instance, in addition to small businesses, the state’s Choose Colorado website provides over 150 resources for nonprofits and independent contractors, and the Small Business Development Center website also hosts a collection of resources.
Intellectual property is a long-term investment to hold on to, Hoffman said, along with what he called “entrepreneurial agility.”
“It’s going to be critical for businesses to be able to pivot quickly and meet the demand in this new normal, whatever that is,” Hoffman said. “Folks who are married to an idea or one way of doing things – they’re not going to survive.”
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