Small Business Is A Large Part Of The Economy. Lockdowns Are Killing Them

Are you ready for the Great Business Lockdown Part II?

You may be ready, but small business definitely is not. They were already struggling after the March – July lockdown and the violent protests that affected many cities last summer. The fall reopening mostly failed, and now increasing caseloads and fatalities from COVID are causing another wave of lockdowns.

Many businesses are easily lumped into the small business category, including hair and nail salons, bars, restaurants, coffee shops, boutiques, and even many professional service firms including lawyers, accountants and wealth managers who do not work in large corporate settings.

But, technically a small business is defined by the government as any business with fewer than 500 employees. This can include manufacturing centers, independent transportation hubs, and retailers (although some such as food stores are labeled “essential” and allowed to remain open). The individual outlets may be small, but they are huge in the aggregate.

When you shut down small businesses, you are shutting down as much as half the U.S. economy. What sets small businesses apart from large businesses (other than scale) is the amount of working capital available.

Large businesses often have cash reserves, lines of credit, government contracts, and easier access to COVID financial relief programs. Small businesses don’t.

A small business typically operates on a pay-as-you-go basis with income used to cover expenses, leaving a small but steady profit for the owner. When you shut down those businesses, they still have fixed costs such as rent, utilities, taxes, and benefits. Working capital is quickly depleted.

If this situation persists, it’s not just a matter of a lockdown. The business actually fails and disappears completely, leaving permanent unemployment in its wake.

As described in this article, panicky politicians don’t understand any of this. Politicians and bureaucrats think that locking down a business is like turning off a light switch. You can always turn it back on when you want. That’s not true.

As the article reports, even those businesses allowed to remain open face a raft of regulations on operating hours, capacity, precautions, outdoor operations, and more. As if that weren’t bad enough, the rules and regulations keep changing. This just adds to the costs for businesses that were struggling to begin with.

Small business has had to deal with the pandemic itself, then the original lockdown (March-July), then the riots and looting over the summer, and now a new spike in COVID cases and new lockdown rules. The result is not a short-term setback; It’s a permanent hit to the U.S. economy with inter-generational effects.

Politicians don’t get it, but investors soon will as they struggle to preserve wealth in a permanently impaired economy.

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