The state of small businesses during COVID

A contributed perspective by Stephan J. Hess, CFP

Editor’s Note: This is another installment of a monthly series of contributed pieces addressing financial matters.

Recessions are natural occurrences that happen periodically, much like five-mile backups on Interstate 81. More than minor inconveniences, however, recessions can quickly change the business landscape as demand dries up. They are indiscriminate and uncaring about the damage caused. What we are experiencing now is no normal recession, and never have we seen such a ferocious economic nosedive.

This month I talked with local restaurant owners, retailers, and small professional offices to find out where they are today and what are they thinking. Some are continuing “business as usual,” but most have had to make significant adjustments. All asked for anonymity in order to share their honest feelings.

One person I spoke with told me, “People want a positive story right now, but I can assure you that there is a thick façade over it all.”

Small business owners have unique visions and passions driving them to take on huge personal and financial risks. They work insane hours, hoping to be one of the lucky few who do well. They forego a great deal, and for some, are more motivated to fulfill a need in our community than personal wealth creation. With so much recent growth in Harrisonburg and the successful revitalization of our downtown, many new businesses have staked claims in our community.

New businesses need to learn fast and adapt quickly in order to find the right combination for sustainability. This takes time, which is why it was particularly heartbreaking to hear from those that were on the cusp of success. Some just finally eliminated that pile of initial debt or were experiencing strong new momentum. There was a real sense of optimism and growing confidence. Then the coronavirus hit, and for many it was a total gut punch. When the mandated lockdowns began, all business owners naturally had an overwhelming sense of shock and worry.

Fast forward eight weeks and surprisingly, that was not what I was still hearing. Instead, there was total acceptance and that odd sense of peace and humility that comes from knowing that there is absolutely nothing you can do. One person expressed how nice it was to spend more time with his family. Another even felt a renewed sense of exhilaration in the chaos of needing to think fast to survive. All expressed a huge sense of pride in their businesses, although the idea of letting go of their dreams and the potential loss to the community weighed heavily on their minds. If there was worry, it was mainly for their customers and employees who rely on them. “Every day brings different emotions,” one added.

“Normal recessions don’t scare me, we can manage that sort of risk,” said one business owner. “In the short term we can be adaptable, but the elimination of long-term foot traffic leads to a very different outcome.”

Most expect their customer base to shrink as people cut back on discretionary spending or fear going out to crowded spaces. Not only has income stopped, but refunds on future services are taking a huge toll. Most owners initially paid rent, but none of them are eager about taking on new debt for rent and utilities when they are completely shut down. Most of those I spoke to have not talked to their landlords yet but plan to. Online sales and creative marketing seem to be more about keeping a line of contact with customers than earning income.

The Payroll Protection Program (PPP) and Emergency Disaster Loans (EIDL) were designed to help small businesses cope with the downdraft by providing short-term funds to support certain expenses and keep employees. All the businesses we spoke to have received funds, but some still had to furlough their people anyway. There remains a great deal of confusion about how this money can be used, especially when your immediate focus is survival. If 75% of the PPP funds are not used for payroll, then the money must be paid back. Many feared eventually needing to close the business and having to pay back the loan as well – added insult to injury. For many, the process of applying was a full-time job but they all gave their small local and regional banks high marks for their help and swiftness.

Many owners expressed concerns about getting employees back when the time comes to reopen. For some employees, the enhanced unemployment benefits mean they are making more than what they were before. Employees overwhelmingly dislike dealing with unemployment claims, and the potential confusion of coming back to work part-time or for on-again, off-again periods. Most prefer to just stay home. Employers also fear that some staff members may have left the community or have found work elsewhere.

Without personal consultants and teams of attorneys to guide them, many business owners are listening carefully to the scientists and watching to see when and how JMU and the local school systems decide to safely reopen. For some, reopening still creates ethical concerns about their role in the future spread of the virus. Business owners naturally rely heavily on local customers, but most admitted that the economic impact of JMU was important to them.

Personally, I am rooting for them all, but occasionally there does come a point where personal dreams and life’s realities must get together and have a hard discussion. I fear that some will not have the will or financial ability to carry on. While this is a naturally occurring phenomenon during recessions, it is always a loss for our community.

Stephan J. Hess, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional and is the owner of Hess Financial in Harrisonburg. Neither he nor his company has any financial relationship with The Citizen or its publishers.

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