How the early of Covid-19 stages affected small businesses
While it is clear that the coronavirus pandemic has significantly impacted businesses, especially small businesses, it will be a long time before society can understand the full effect that the pandemic, including uncertainty surrounding shutdowns, has had (and will continue to have) on businesses.
Fortunately, research on the impact that the COVID-19 pandemic, as well as economic shutdowns, continues to have on businesses is starting to get out there. This should guide lawmakers in making more optimal policy decisions as the pandemic continues.
A recently published NBER study, for example, surveyed owners, managers, and employees of small businesses” in the US to understand how small businesses were affected by the COVID-19 pandemic’s early stages.
The study asked over a hundred questions with topics ranging from changes in operations, and employment to financing patterns. The results reveal, much like other data has shown, that businesses, especially small businesses, have been devastated by the pandemic, and the associated shutdowns and continued closure of the economy will likely worsen this trend.
Effect of COVID-19 on Open Businesses
Among the businesses that were operating when surveyed — about 61 percent of all surveyed businesses, the study found that a little over 60 percent lost over half of their business, on average, and saw their workload fall. A majority of businesses also increased their online presence, and just a little over half expected to survive if the conditions in late April continued for another 6 months.
Businesses were struggling to pay bills such as rent, wages, and debt obligations. Specifically, 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.
Business owners and managers also increased the time they spent on business work and housework, with each responsibility impinging on the other.
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.
Lawmakers take note
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 savings to reopen, and 23.3% planned to make changes to products or services they offered before closure.
Lawmakers need to take note of these concerning responses and adjust policy appropriately.