Business Fails Quicker and Quicker
Business fails quicker and quicker as the ignorance to the economy continues. As stated in yesterday’s post, Governor Murphy of New Jersey is focused solely on the health portion of the crisis, while President Trump quickly begins his push to restart the economy at all costs. Neither the President’s position nor Governor Murphy’s position are correct. You cannot work on one problem while ignoring the other. Our leaders need to work together to develop a holistic approach to dealing with the Coronavirus pandemic simultaneously.
Similar to a two-front war you have likely studied in history classes, we need to work on both of these issues hand-in-hand. Just as in a legal mediation, it is likely the proper response would leave zealots on both sides unhappy. The health professionals would believe we could do more to protect individuals, and business leaders would think we are hamstringing their firms too much. However, this month-long focus exclusively on health is on the cusp of doing almost irreversible damage as small businesses buckle under the sustained economic pressure.
Small Businesses Close Their Doors
Ruth Simon of the Wall Street Journal just today published an article discussing the disastrous demise of some small businesses throughout the country. While it is nothing we do not know already, Ms. Simon references a study by the JP Morgan Chase Institute which depicts the economic strain small businesses are feeling from this prolong shutdown:
“In a typical community, nearly half of small businesses had less than two weeks of cash liquidity.”
This number is only going to grow by large factors as the quarantine orders continue. Here in the Northeast corridor most of us are already 30 plus days isolated, and with half of small businesses having less than two week of cash, the percentage only gets bigger when you consider four weeks or more. This problem, as discussed yesterday, is only compounding the problem. Ms. Simon quoted small business owners who said it best:
“government relief, including a $350 billion small-business loan fund designed to cover payrolls and other expenses for eight weeks, are either too late in coming or won’t provide enough cash.”
Lack of Small Business Cash Flow and Business Failing Quicker and Quicker
This lack of cash is not unique in the highly competitive marketplace of the United States capitalist system. While talking heads, pundits, and wall street will try to make the less informed believe there are easily accessible methods for cash, start up loans, or venture capital, this is not true within the world of small business. Those of us who have built our firms from scratch understand this.
When examining the small business crisis, it is also important to realize that the Federal government and the SBA define small business as firms with 500 employees or less. While all of us strive to develop this type of growth and expansion, a 500 employee firm is not common within most communities. All of this may be too late anyhow. Yesterday the International Monetary Fund (I.M.F.) stated they expect the global economy to shrink by 3 percent in the remainder of 2020 alone. Worse yet, the group of 7 finance ministers think the United States will shrink by 6 percent, making our country exceptionally hard hit.
Killing the American Spirit, Killing Entrepreneurship
We need to be careful we do not inadvertently kill the American spirit that allows our nation to experience continued success. As business fails quicker and quicker we need to evaluate what makes our country successful. Our finance laws, encouragement of intelligent business risk, reasonable bankruptcy laws, lack of permanent stigma of failure, and protections of personal and intellectual property are the foundations our success is built on. With such a damning economic shutdown we must pay special attention to build up those individuals who are still willing to risk it all, sacrifice time and money on a ‘maybe,’ and put themselves out there for the benefit of everyone.
The economic impact of this crisis will only be outdone if we kill off the values that make the United States unique or ostracize American small business owners and entrepreneurs from the culture they’ve helped create. It is unbelievably important that we protect our value system and culture of ingenuity, innovation, and possibility by protecting small business and entrepreneurship now, while we still have a chance.