Small Businesses Pivot During COVID-19
McKinsey predicted that small businesses across the United States would furlough 30 million small-business employees. The majority of these vulnerable jobs are within some industries, such as construction, healthcare/social assistance, retailing, accommodations, and food services. The CARES Act contains "$376 billion in relief for American workers and small businesses." To address the COVID-19 pandemic, the CARES Act offered temporary programs that work side-by-side with the traditional SBA funding programs.
COVID-19 Impacts on Small Businesses
Most Impacted Industries
- According to Facebook SMB online survey, the most impacted industries are personal services, hospitality (hotels, cafes, and restaurants), and professional services (grooming, wellness, and fitness). The percentage of businesses within these industries that are currently not operational or engaging in revenue-generating activities is 52%, 43%, and 41%, respectively.
- SMB Group surveyed 503 business decision-makers, of which 95% are in the United States, and more than 50% are small businesses (less than 100 employees). The survey found that "personal services, hospitality, and manufacturing are taking the biggest hits, with 100%, 95%, and 90% of respondents in these industries, respectively, say the pandemic had negatively impacted their businesses.
Unemployment Rates and Layoffs
- Once the country's closures started on March 17th, the number of hours employees were working at small businesses declined by 62%.
- McKinsey predicted that small businesses across the country would furlough 30 million small-business employees. The majority of these vulnerable jobs are within some industries, such as construction, healthcare/social assistance, retailing, accommodations, and food services.
- A survey conducted by the Small Business Investor Alliance (SBIA) on small businesses found that 80% of respondents have serious cash flow concerns. "More critically, 21% of respondents had already initiated significant layoffs, with 64% anticipating significant layoffs going forward if the crisis were to persist without government assistance." In the worst-case scenario, where the laid-off employees don't find alternative employment, the layoffs could contribute to an increase of 11.5 percentage points in the unemployment rate.
- Thirty-seven percent of small businesses employing 11-25 employees are planning to lay off a fifth of their employees.
Shift Towards Work-From-Home Options
- According to an online survey conducted by ZenBusiness on 1,074 founders and decision-makers in small businesses, nearly 45.5% of respondents did not have remote workers within their workforce. After the pandemic, 70% of respondents stated that they are employing at least one employee working from home.
- More specifically, 48.2% of businesses with 2-10 employees are offering remote work options during the crisis, while 53.5% of those with 11-25 employees are offering remote work options.
- Nearly 57.1% of businesses with 26-50 employees are offering remote work options during the crisis, while 65.3% of those with more than 51 employees are offering remote work options.
- Seventy percent of businesses with over 50 employees intend to keep work from home options in place after the pandemic. Similarly, 57% of business owners with 2-10 employees are planning to continue offering work-from-home options in the future.
Government Economic Stimulus Packages
- The CARES Act contains "$376 billion in relief for American workers and small businesses." To address the COVID-19 pandemic, the CARES Act offered temporary programs that work side-by-side with the traditional SBA funding programs. Below are some programs.
- The Paycheck Protection Program (PPP) provides "loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan program." The program is intended to cover two and a half months of payroll with a maximum of $10 million in loans.
- The EIDL Loan Advance provides $10,000 of economic relief to businesses that are currently experiencing temporary difficulties. "However, if a small business owner gets both an EIDL grant and a PPP loan, the forgiveness of the PPP loan would be reduced by the amount of the grant."
- The SBA Express Bridge Loan "enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly." These loans are intended to help small businesses overcome temporary financial loss. They are also used to "bridge the gap while applying for a direct SBA Economic Injury Disaster Loan."
- The SBA Debt Relief "will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans, in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020."
Recovery from the Pandemic
- According to an online survey conducted by ZenBusiness on 1,074 founders and decision-makers in small businesses, nearly 23% of respondents with over 50 employees said that the recovery could take at least 6-12 months. The vast majority of respondents stated that they are expecting that the impact of the pandemic could take one year to get over.
- Forbes provided a recovery plan for small businesses to get over the long-term effects of the pandemic. The recovery plan consists of the steps listed below.
- Assess the financial damage: This step aims to determine how deeply the small business has been affected by COVID-19. Aside from sales, profits, and cash flow, small business owners should consider other effects of the pandemic, such as laid-off employees, decreasing marketing budget, or losing customers to competitors.
- Revised business plan: Small businesses need to analyze their industry, how it has been affected by the pandemic, their competitors, industry trends, and opportunities. They could try to find an emerging need in the industry that their business can fulfill. The revised business plan and business model should take into consideration the business’s strengths and weaknesses to set revised, realistic goals.
- Funding to recover: Small businesses may likely need "some working capital to jump-start" their business operations coming out of it. Several options are to consider, such as government economic stimulus packages, to finance business during a COVID-19 recover period.
- "Revamp budget to account for new spending": As part of the pandemic recovery plan, small businesses should "have a clear idea of what they need to be budgeting for and what they can cut to make the most of the revenue they do have coming in."
- Develop a timeline plan: "Doing everything at once may not be realistic." Small businesses need a timeline to follow to prioritize their most important actions first. As they take individual steps toward recovery, they could start by tracking their progress weekly. Later, they can switch to a monthly review.
Negative Impacts and Risk of Closing Permanently
- Ninety-two percent of small businesses are negatively impacted by COVID-19. The top negative impacts are slower sales (80%), supply chain disruptions (31%), and concerns over sick employees (23%).
- There are 30 million small businesses in the United States, of which "7.5 million small businesses may be at risk of closing permanently over the coming five months, and 3.5 million are at risk of closure in the next two months."
Strategies to Cope with the Pandemic
Assessment to Manage Cash Flow
- The assessment strategy starts with understanding what operating expenses the business can cover, how the business could adjust those expenses, what reserves the business has, and whether there are possible ways to create additional reserves.
- This strategy helps businesses to understand the current status of the business operating cycle, determine whether the business needs to borrow funds and seek assistance, and cut expenses as needed.
- The direct effect of this strategy is helping businesses to manage their cash flow to cope with the pandemic.
- An example of companies applying the strategy is Cousins Subs. According to Jason Westhoff, president of Cousins Subs, the company started by immediately putting together "a 90-day cash forecast with the ability to vary sales losses." Based on the company's sales loss of 50%, they decided they need to seek assistance. Thus, they started discussions to get a line of credit from their bank. To cut their expenses, "Cousins also froze all capital spending, including the development of new stores, and instituted an across-the-board 20% pay cut for all non-restaurant personnel as well as a 40% cut for managers."
Adapt, Pivot, and Expand to Other Markets
- The strategy starts with adopting a new business model to survive the pandemic and looking for creative ways to pivot the business towards more profitable options.
- This strategy helps businesses to expand to other markets and diversify their revenue streams.
- The direct effect of the strategy is keeping the business operating during the crisis with new options that resonate with their clientele.
- An example of companies applying the strategy is Jen Geer Photography. When the business photo shoots were all canceled or postponed due to the pandemic, Jen Geer photography came up with a new solution, where they pivoted towards offering "free outdoor portrait sessions—from a safe distance." This pivot helped the business to keep traffic flowing to their website.
- Another example is Aman, the cleaning services. At the beginning of the lockdown, the business struggled because their clients were afraid and aren't able to use the service. "Aman began offering sterilization and disinfection services for entrances of buildings that were still in use. The demand isn’t as high as normal, but it allows them to continue operating during this unprecedented period. "
New Ways to Deliver Products
- The strategy aims to find new ways to deliver products and services, specifically for brick-and-mortar businesses, where the "business model involves people coming in to browse or interact" with the business.
- This strategy helps businesses to "retain existing customers during social distancing, while also potentially opening the market to people outside of the geographic area."
- The direct effect of the strategy is keeping the business operating online during the crisis with new options for delivery.
- An example of companies applying the strategy is Necker's Toyland. The toy store got creative by "offering a FaceTime browsing option, virtually walking kids around the store, so they can pick out something that’ll keep them busy during the quarantine. Then they’re offering curbside pickup or delivery to nearby towns."
Partner with Other Businesses
- The strategy aims to build new business partnerships between struggling businesses and other businesses (struggling or less-affected businesses).
- This strategy helps both businesses to retain existing customers during social distancing, while also having new marketing channel and targeting new customers.
- The direct effect of the strategy is keeping the business operating despite the lack of business in-house.
- An example of companies applying the strategy is City Home, which partnered with Old Town Florist. The home and decor company offers a surprise bouquet from Old Town Florist with their home decor product delivery. "For City Home, the promotion serves as an incentive to purchase. But Old Town Florist benefits, too: it’s a new marketing channel, targeting customers who have a vested interest in home decor and would be likely to purchase flowers to brighten a room."
Stay Connected with Consumers
- The strategy aims to stay connected with customers through virtual channels, such as sending emails, updating the company's website, creating Facebook pages, and asking customers for ideas.
- This strategy allows businesses to "continue to market and connect with their customers" even when they’re not coming into their brick-and-mortar store.
- The direct effect of the strategy is letting customers guide the company's crisis strategy, ensuring that they are providing products and services that people want.
- An example of companies applying the strategy is Liz Morrow, a creative interior designer, which "took to Instagram to ask people what they’d like her help with."