Small businesses are the foundation of the economy with owners coordinating people and resources to provide solutions to problems in the market. The balance that small business owners need to keep is a precarious one because having people without resources, or resources without people, means that no business can function properly. By most accounts, more than 50% of business will fail by their fifth year which means any business that may have already been struggling before COVID-19 will now experience an acceleration of problems that they won’t have time to properly address to ensure their survival.
The following is a list of the 10 problems small business owners are struggling with right now that they wish more people, including their staff, bankers, and government representatives understood. As you read through the list, think of your local plumber, mechanic shop, construction company, supplier of goods and businesses that employ every day people who are providing for their families.
- Drop in revenue
- Customers not being able to pay
- Hours not available for workers to work
- No cash reserves to pay for idle staff
- Loans are not helpful because they have to be repaid
- Remote work is not an option
- Businesses are already leveraged
- Potential lawsuits
- Lack of support to make decisions
- The speed of changes and uncertain outcomes
Keep in mind that the list does not include the mental and physical stress that small business owners are wrestling with as they have difficult conversations with staff, customers and suppliers. The burden of not having answers is frustrating and they don’t have a choice to not address the problems that are happening in real-time as staff and others are looking to them for direction.
Small business owners have no interest in quitting, shutting down or standing by as events unfold. What they could use is some direction and assistance with actionable steps as they work through the specific challenges they are having. For each of the problems on the list above there are solutions that can guide small owners through this moment. If you can provide a solution that would help a small business consider doing what you can, as many owners may not be able to articulate what they are experiencing, much less know how to ask for help.
1. Drop in revenue
The single largest problem being faced by small businesses is the extreme drop in sales caused by a chain reaction of events beyond their control. With people panicking they are not spending money on products and services that wouldn’t normally be impacted. Customers are only paying for the urgent products and services they require to preserve cash as they face an uncertain future. To illustrate the problem, imagine you have been getting a haircut every month and it was simply part of your normal course of life. You now will most likely consider skipping your next haircut as you don’t want to spend your money if you don’t absolutely have to. You may even choose to skip two haircuts to save money. Now imagine the majority of people make the same decision. All of the sudden hairdressers everywhere are scrambling to figure out how to pay for their expenses because the drop in sales has changed their revenue virtually overnight.
Solution: People need to spend money or get in touch with the businesses they would normally interact with and find out how they can help. Purchasing gift cards today and spending them in the future is an example of how to help a small business access money so they can meet their commitments to staff and suppliers. If you are owed money from a small business, get in touch with them to work out a plan or at least discuss a repayment plan that is mutually beneficial.
The government has a system to get benefits to seniors, low income people and others who need financial support that could be re-tooled to create a pool of capital that people could spend with local businesses. An individual could request the services of a particular business and the request would be funded with cash sent to the small business directly. An individual would get a receipt and the business would receive a notification so that a transaction could occur. This is one of many ideas that the government could capitalize on to help prop up the lack of sales small businesses are experiencing.
2. Customers not being able to pay
Extending payment terms to customers is a normal practise for businesses that complete services today or sell a product today and collect payment later. Think of a supplier or a construction company that will sell you something or build something today and send you an invoice for you to pay later. For any business that has outstanding invoices that are scheduled to be paid by customers, those same customers are now holding onto their cash and making the decision to pay the invoice later than expected. They are not doing this to be malicious, they are doing this because they are owed money from their customers who are making the same decision to delay paying them which is creating a chain reaction of businesses not paying their bills. Every business is a customer of another business. The effect of this chain reaction is that small businesses are having to turn away work because they are scared they won’t be paid and will have to carry expenses for an indefinite amount of time.
Solution: Pay your existing and outstanding bills with a small business and going forward offer to pay COD (cash on delivery) to help a small business meet its commitments to staff and suppliers as they come due. Asking a small business to carry your costs for a month or two will have a dire impact on their business.
The government could consider providing working capital loans at zero interest to keep money moving between businesses if a small business can provide evidence of their historical accounts receivables and their current opportunities that they are holding off on or nervous to accept.
3. Hours not available for workers to work
Less revenue means that there are less customers. Less customers means that there are less hours to work. Less hours to work means that a small business cannot offer work to its staff. There are obvious examples of restaurants, coffee shops and other public facing businesses that are not able to offer hours to their employees but there are non-public facing businesses like mechanic shops, plumbing businesses, roofers, etc. that are experiencing the same challenges with less customers and less hours available to work than what they would normally be accustom to.
Solution: Staff and employees could volunteer to reduce their hours to match the amount of work that is available. Staff could work together to determine a priority list of who gets hours and how many each person gets. There could also be time spent paying staff to complete outstanding tasks that have been low on the priority list.
The government could allow small businesses to temporarily layoff their staff and have their staff rotate through whatever hours are available to make up lost income. Right now the paperwork and process required to do this with the government is confusing and there are not enough resources (or people) available to help small businesses understand how to navigate the steps.
4. No cash reserves to pay idle staff
Small businesses operate with very little excess cash and few have any cash sitting in a bank account just waiting to be used. Because small businesses pay for their expenses in advance of earning income they generally do not have the ability to pay for expenses for weeks at a time, let alone months without sales from customers. For small businesses that have done a reasonably good job balancing income and expenses, they are not in a position to pay for staff that are not serving customers or filling orders. For businesses that have a working capital loan or line of credit, chances are they have no cash available to pay staff if sales have dropped. Another way to think of this is that a typical business will have one or maybe two months in a year where their profits are available for their business to use (think of Black Friday). This means that in a perfect year a business could pay their expenses for one or two months without sales. Given that no business runs perfectly, this highlights the challenge faced by small businesses that simply do not have cash available to pay staff and other expenses if there are no sales.
Solution: For staff that are interested in helping, they could work with their small business owner to find productive tasks that help the business generate revenue or save costs which may make cash available for payroll.
The government could employ small businesses through a temporary work program to fill gaps in the marketplace that would provide meaningful work to employees and give the business cash to operate.
5. Loans are not helpful because they have to be repaid
It’s hard enough for a small business to generate a meaningful amount of profit that can be used to purchase equipment, inventory while paying down debt and expenses. Loading more debt onto the balance sheets of small businesses means they have to work that much harder (or longer) when the market settles down just to get back to where they were. If given the choice, many small businesses would not borrow more money unless it could be used to help generate more opportunities. The idea of borrowing money to pay for expenses that they are not able to cover (and may never be able to cover) is a decision no prudent small business owner would make.
Solution: Banks could allow small businesses to defer all of their existing loan payments for an undetermined period of time and could consider taking non-voting equity in businesses in exchange for the deferral. This would align the interests of business and bankers when the dust settles and would provide a mechanism for banks writing off bad debts and businesses being given an opportunity to make the most of the deferrals to stabilize and fix their businesses.
The government could provide single advances to businesses to use under either a grant program or by industry category to stimulate activity in the market. The advances should not be repayable, should not carry interest and should not be used for non-business activities. Small businesses are a great conduit for governments to use to get money into the market but creating low interest loans is not a productive solution and will end up increasing the volume of the inevitable bankruptcies for businesses that were never going to be in a position to repay it.
6. Remote work is not an option
There are so many businesses that are not in a position to work remotely. Physical work that involves human beings interacting with physical objects cannot be done through a computer screen. A plumber needs to fix broken pipes. A mechanic needs to touch engine parts. A hairdresser needs to touch and cut real hair. This type of work cannot be done on a remote basis.
Solution: Similar to point number 1 above, customers could pre-purchase services and products that small businesses could fulfill and deliver once the requirement to be isolated and quarantined no longer exists. If customers are not in a position to pay in advance then they can simply notify the small business so a pipeline can be managed and acted upon when the time permits. If a small business is able to build a high quality pipeline of future opportunities they would feel more comfortable making decisions to borrow funds or leverage their existing resources today in hopes of capitalizing on future opportunities.
If a business could substantiate and evidence its future sales opportunities, the government could provide one time advances or grants to a business for funds that could be used to support a business and its expenses while it waits for the market to settle down.
7. Businesses are already leveraged
The reality is that many small businesses will not survive the current crisis. The debt loads already borne by small businesses is hard to manage under normal economic circumstances much less under the current circumstances being faced by owners. With no relief for debt, tax and payroll obligations in sight, small businesses are going to be faced with very difficult decisions to go bankrupt due to challenges they are simply not prepared to face. Many businesses use lines of credit and working capital loans to float the gap between when they expect to receive money and when they have to pay for their expenses. These lines of credit and working capital loans will inevitably be maxed out during this crisis leaving small businesses with few options for servicing their obligations much less paying them off.
Solution: Banks could do the work needed to revisit their loan portfolios and work with small businesses to determine which ones are salvageable and which ones are not. For businesses that could emerge from the current crisis and experience some success, banks could work closely with them to help them get to where they need to be by creating new loan and equity programs that align the interests of a business and bank to recover any losses that would be easier to do leveraging each others resources instead of working at arms-length.
If banks are able to do the work needed to prevent unnecessary losses they could approach the government and look for guarantees for a percentage of new loans or equity programs offered to business that have a chance at surviving. This would align the interests of small businesses, bankers and governments who will need to work together for an economic recovery.
8. Potential lawsuits
In the midst of the current chaos, small businesses are making reactive decisions to events involving employees, suppliers, partners and other parties. Those decisions may be well meaning but may result in small businesses being exposed to significant legal liability. Laws and regulations are detailed and nuanced under normal circumstances which makes it tough for a small business owner to make decisions but when the pressure is on, small business owners may not have the opportunity to consult a lawyer or get sound legal advice in a timely manner. There is a fear that once the dust settles a small business could be tied up in litigation for decisions made during an unprecedented time.
Solution: Lawyers, law firms, government representatives could make resources available that are easy to understand and can be used to make decisions quickly for the most common questions being faced by small business owners. Most decisions that small business will be looking to make involve trying to preserve their business and they need the ability to know how to do that in a manner that does not put them offside with the respective laws and regulations.
The government could create a greater capacity for arbitration and be proactive in making clear exceptions for laws and regulations that may have been breached as a small business attempted to keep their affairs in order. The government could also make people available to be resources through a website and/or telephone similar to health hotlines that small business owners could access to get their questions answered.
9. Lack of support to make decisions
What most people don’t know is that many small business owners are actually quite lonely. Not in the sense of families and friends but in the sense of having access to business advice and help. There is so much help available for small business owners through the internet, professionals, associations, clubs, etc. but much of that assumes a small business owner knows what problem they are trying to solve. Many businesses were not started by business graduates but rather by every day people that saw an opportunity to solve a problem. They have built their businesses one decision at a time and generally speaking, react to problems as they arise because they have no point of reference for knowing how to get in front of them. There is also a deep sense of pride that small business owners have who do not want to admit that they are failing or struggling.
Solution: The government could coordinate resources from professionals and others who can help small businesses address the actual challenges they are having. This would involve a deep understanding of how small businesses work and practical solutions to real problems. Advisory boards could be established to help set policy and to be a place of refuge for small business owners that are without a compass right now.
10. The speed of change and uncertain outcomes
Decisions made on Monday are no longer relevant on Wednesday. Decisions that a small business owner thought they could defer for a week are now needing to be made in a day or two. The bad news is that the speed of change is happening quickly. The good news is that the speed of change is happening quickly. Instead of protracted and painful outcomes, small business owners are having to react and respond to immediate challenges which means there are only so many decisions to be made. Within a short period of time many small businesses will have reached their bottom.
Solution: Be patient with small businesses that are not as responsive as you may need them to be. Give small business owners the benefit of a doubt and if you have opinions or insights that may help them do a better job, tell them. No one is an expert in working through the current challenges being faced but many people have pieces of experience that can be used to help small businesses work through this crisis.
When all is said and done, not every business will survive the current crisis. Keep in mind that 50% of businesses don’t survive their first five years so the current crisis is simply speeding up the inevitable outcome that many businesses were already facing. On the other hand, 50% of businesses do survive and merit help today. While business may not return to normal, there are strategies and tactics that industry and governments can respond with today to support the businesses that will be supporting them in the future.