Minnesota’s Economic News — W/E 7/1/22
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Throughout the duration of the coronavirus, it has been clear just how much small businesses have been hurt by the shutdown. And more than that businesses have also been hurt by the uncertainty surrounding the shutdown. For a lot of small businesses, it is generally hard to stay in businesses in periods of prolonged negative cashflows. And the coronavirus shutdown provided just that.
It will probably be a long time until the full effects of the coronavirus on small businesses are understood. But just recently, an NBER paper has come out providing more detail into how small businesses were impacted by the coronavirus in the early stages. Authors of the study “analyze a large-scale survey of owners, managers, and employees of small businesses in the United States to understand the effects of the early stages of the COVID-19 pandemic on those businesses”.
And to do that they asked “136 questions covering topics such as changes in business operations and employment, changes in financing patterns, and the interaction of household and business responsibilities”. This study, in general, provides a more comprehensive glance into how small business operations were impacted by the crisis.
Out of the businesses that were surveyed, 61.7% of them were operational during the time of the study. And among these businesses, the survey found, among other things that;
1)When it came to operations, 60.9% of businesses saw their workload fall, and on average they lost over half of their business. Additionally, a majority of businesses increased their online presence, and just a little over half of the surveyed businesses expected to survive if the conditions in late April continued for another 6 months.
2)When it came to finances, businesses were struggling to pay bills such as rent, wages, and debt obligations. About 42% of businesses reported having more cash outflows than inflows in the past month. And 78.2% were concerned with cash flow over the next 3 months. Furthermore, only about a quarter of businesses had access to formal sources of finance like a loan. Most businesses were reliant on personal savings or other informal sources of financing.
3)Business owners and managers increased the time they spent on business work and housework, with each responsibility impinging on the other.
4)About 44.5% of businesses reduced the number of workers through temporary or permanent layoffs. Firms with fewer in-person interactions, as to be expected, were least likely to lay off workers. Additionally, female employees were more affected by the crisis than male employees.
5)When it came to survival strategies, at least half of businesses responded to the crisis by providing online services. A good proportion expanded digital payment services, used delivery services, and also curbside pickup. However, about 36.1% of businesses found it difficult to change the delivery of goods or services in response to the virus.
Out of businesses surveyed, 32.9% had ceased operations by late April, the time at which the survey was conducted. Among those that were closed, 57.5% reported that they had shut down in response to government and health authority orders and 27.3% were unsure of whether they would reopen in the future. Additionally, 41.2% of closed businesses planned to use their personal savings to reopen, and 23.3% planned to make changes to products or services they offered prior to closure.
Small businesses, as research continues to show, are the backbone of the economy. They are the drivers of job creation as well as job growth. Understanding how Covid-19 and the response to it impacted small businesses will go a long way in ensuring correct measures are taken to ensure small business recovery.