(This post originally appeared on The Washington Times)
Recently, financial services firm Lending Tree published a report that gravely warned as many as 40% of small businesses have less than a month’s worth of cash and that, without government help, “are in danger of shutting down” — 40%! Even if a third of the 30 million small businesses in this country shut down (Lending Tree’s range was 24% to 40%) that would be like 10 million businesses going bust. Wow.
That sounds terrifying until you look at this 2016 report by JP Morgan Chase, which revealed that the typical small business — even in growing economic times — normally has only — ready? … 27 days of cash on hand. Not only that, but the JP Morgan Chase study assumed no future revenues, which is a lot worse of a scenario than today’s reality.
So what’s up with this? A representative from Lending Tree admitted that “there isn’t typically a ton of businesses closing en masse,” but, he wrote back to me that “what is interesting now is that business revenues plummeted in March and April, and as of yet still have not recovered. That suggests businesses may need to pay their bills by other means.” What means could that be? Ah-hah! Maybe financing from Lending Tree?
Also misleading is when academics make sweeping — and oftentimes ludicrous — statements like the one made by a University of Connecticut economics professor where he literally predicts that giant corporations may be the “only survivors” in the post-pandemic economy. Yes, that’s right folks: All 30 million small businesses will be wiped out.
Among the dire statements he makes of Evil Corp stomping out small businesses is that “Main Streets will therefore grow blander and more corporate, and a swath of storefronts will go dark permanently because the coronavirus has turbocharged the long-standing shift to online shopping.”
And who exactly is fueling that shift to online shopping? That’s right, millions of small merchants on Amazon, eBay, Craigslist and Etsy as well as those selling their products independently using e-commerce tools like Shopify and Magento. This is not giant corporations killing small businesses. It’s smart and innovative entrepreneurs pivoting because of a changing world.
Instead of paying rent and utilities at storefronts, these people are quietly earning their livelihoods from their homes (that is if they’re not renting out their homes on Airbnb). This is not the demise of small business. It’s just a change.
Then there are the calamitous news reports that warn of a coming “surge” in small business bankruptcies and warnings from organizations like the International Monetary Fund (IMF) that claim that small and mid-sized bankruptcies may triple because of coronavirus.
Yes, there are going to be more bankruptcies. But it’s likely that many of these companies — and I know a few — weren’t run so great to begin with and were merely propped up by a strong economy.
Let’s also keep in mind that anywhere from 7% to 9% of the 5.9 million employer firms in the U.S. actually go out of business every year anyway, according to the Small Business Administration. Will those 500,000 businesses that would have gone bust also be removed from the media’s future bankruptcy reports or will they be part of the “small business is failing” narrative? I think you can guess.
Notice something? None of this is news. These are all just predictions based on sketchy data and shaped by people and firms with their own agendas. They’re not facts. They’re published because they attract clicks, sell financial services and yes, even serve to hurt the president’s re-election chances.
But drive around your neighborhood. Do you see half of the stores shuttered permanently? Are small-business owners standing outside with tin cups begging for pennies? Of course not. My firm has about 600 active clients, many of them family owned and in dirty industries that sell parts, tools, equipment, services and products both online and through various charges. Many are essential businesses. Many others have adjusted their workplaces. Just about all are coping. I know this. I talk to them.
These companies are managed by smart, independent, capable people. They are relied on by those evil big corporations to provide necessary services — from landscaping to construction. Many have struggled with lower sales and more workplace rules.
But many others have seen an increase in revenues because they’re in industries (health care, cleaning, protective equipment, gaming) or regions that have seen upticks in activities. Maybe that’s why small-business confidence not only significantly rose this month, but in the midst of this “unprecedented” downturn is now at the levels last seen in 2016, not 2009. Or that just this week manufacturing expanded, builder confidence reached pre-pandemic levels and retail sales rose?
The fact is that yes, we are in a serious economic downturn and yes, there will be many small-business bankruptcies. This is a very difficult time and many business owners — particularly restaurant and retail stores — need more help.
But a recovery is already underway. So instead of lamenting the demise of the already disappearing merchant can we give a little credit to the millions of entrepreneurs who are navigating these crazy times successfully? Shouldn’t we be talking about their resiliency, creativeness and ability to overcome even these tremendous obstacles?
There are as many success stories in these times than stories of failure. Ignoring those stories in lieu of dire predictions looks more like a political agenda rather than news reporting. But more importantly, only focusing on the negative is demoralizing and, frankly, insulting to the millions of small-business owners who are and will always continue to be the backbone of the U.S. economy.
