Are you feeling the heat of the COVID-19 pandemic on your small personal or formal business venture?
You are not alone.
At the beginning of April, an online survey of 300,000 SMBs by Main Street America predicted the closure of over 7 million businesses, should the pandemic continue for five additional months. Even more sobering was the findings that 3 million businesses would be no more just two months from then, should the situation persist.
Now, Facebook and Small Business Roundtable has published a report dubbed State of Small Business, proving that small and medium-sized businesses (SMBs) are indeed struggling, while others have been long closed. The report is a rich combination of 86,000 responses from owners, workers, or managers of SMBs and personal businesses.
From tight budgets to lower demand for goods and adopting survival tactics, below are major findings from the report.
1. Businesses started closing as early as January
As at the start of April, 31% of SMBs are reported to have closed shop. 71% of SMBs closed in early March, 18% in February, and 4% in January.
Of course, some sectors are worse hit than others. Personal businesses that are providers of products or services such as freelance writing, photography, and handicraft selling topped the list at 52% of closures. 43% were hotels and restaurants, and 41% were professional services such as fitness and wellness firms.
- Why did these ventures close shop?
A big chunk of SMBs, 62%, point a finger at government or higher authority regulations as their top reason for the closure.
9% cited financial challenges while 7% said that demand was not enough to sustain the business.
- Majority of businesses still hope to reopen
The good news is that most businesses that have shut down are hopeful for future operations.
On average, 58% plan to reopen, 35% are sitting on the fence, while 7% expressed no faith in the future of their businesses.
Among those who planned to remain closed, 34% cited the inability to pay bills, while others did not disclose their reasons.
57% of SMB managers and owners said they would reopen if the government allowed their operations while 20% wanted access to capital before resuming operations.
41% of the business owners who plan to reopen said they would use personal savings compared to 28% of those who own personal businesses. Others said they had no idea where they would source for funds when the time to reopen comes.
2. The state of surviving businesses
Businesses that have remained operational are not without challenges. The major hurdles have been:
- A dip in sales
On average 42% of businesses reported lower sales values in the preceding 30 days compared to a similar period in the previous year.
Those who reported no change in sales were 9%, while an almost similar number, 9.6% said they made more sales in the comparative period.
Eateries and accommodation businesses such as hotels and restaurants recorded the highest decline in sales.
- Cash flow problems
As per the report, top concerns for businesses that are yet to close down include paying bills, employee salaries, and rent.
About 40% of businesses had more cash going out than coming in. Construction SMBs were the most affected at 55% followed by service industries at 49%.
How are they coping with cash shortages?
Businesses cited several methods they are to cope with cash challenges including using personal savings, borrowing from relatives and friends, and donations from the community.
45%, almost half of SMB managers and owners, said that interest-free loans would be what they need to survive.
50% of SMBs sought government support, 11% went for bank loans, while 6% preferred private sector capital grants.
Even with businesses’ need for capital, 47% of SMBs are afraid to borrow money as they do not know if they will be able to repay.
- Supply problems
Over half of all types of SMBs reported challenges in receiving business supplies. These included inadequate supplies and late deliveries.
Top of the supply solutions adopted is changing delivery schedules and procedures, of which 24% of businesses have adopted. 18% and 13% of businesses opted to delay orders and use new suppliers respectively.
3.Changes that businesses are considering for survival
In such times, digital transformation has become crucial for the survival of many small businesses. A huge 79% of businesses have made some kind of adjustment to their systems to reach customers online.
The shift to providing online services has been the biggest with an average of 44% of businesses doing the same. Adopting digital payment is a priority, as 33% of businesses go in that direction.
- More opportunity for businesses in the digital sector
If there are businesses that are likely to thrive during this pandemic, those are digital sector businesses such as digital payment platforms.
Businesses are turning to digital methods to receive and transfer payments, and now is the time for digital firms to sign them up!
Ecommerce businesses are also likely to thrive as online shopping becomes the new norm.
- Working at home
Working at home has also been a way of survival for SMBs, although it depends on the sector. For example, only 17% of IT business owners and managers compared to 67% of hotel and restaurant managers reported that they were unable to work remotely.
4. What policies are SMBs banking on to keep their ventures alive?
According to the survey, the biggest issue that SMBs need decoding is salary payments. 38% of respondents said that they needed salary subsidies to keep their businesses afloat. The second most pressing need for businesses, at 36%, was access to credit.
Tax cuts came in third at 34%, while the need for help to take care of family members stood at 23%.
What now for SMBs?
As seen from the report findings, COVID-19 has become a nightmare for most businesses. However, some sectors such as hospitality are worse hit than IT or construction.
Inadequate cash flow is a major pain for businesses right now. Most ventures worry about not being able to pay their employees in the future, which has caused numerous lay-offs.
Even so, the majority of closed businesses hope to reopen, but that will depend on factors such as a shift in government regulations and access to capital.
For now, businesses have to adapt. Incorporating digital platforms as part of business operations is a necessity for survival.
For detailed insights on the state and future of SMBs, check out the entire Facebook survey report here.