As Covid-19 continues its destructive path and the deployment of federal assistance lumbers, the potential collateral damage of the economic fallout to small businesses is mounting by the day. Despite never really showing up in macro-economic consumption models, with each local retailer, restaurant, bakery or hair salon finding its doors being shuttered, the public has begun to realize the incredible part that the 30 million small businesses play in the US economy. To start, half of the population works for one.
To put some perspective on the challenges small businesses are currently facing, according to a JPMorgan Chase Institute study of nearly 600,000 small businesses, the median cash balance for all small businesses surveyed is $12,100, with Personal Services bringing up the lower end at $5,300 and High-Tech Manufacturing being the highest at $34,200. What this translates into is an average cash buffer of 27 days, with certain industries reserving much less. Some of the key industries cited in the study include Restaurants (16 days), Retail (19 days), Wholesalers (23 days), Metal and Machinery (28 days), and High-Tech Manufacturing (32 days). The lowest quartile of businesses surveyed holds fewer than 13 days of cash reserves while the highest quartile holds more than 62 days of cash reserves. California was the first state to effectively shut down its economy on March 19th - 21 days ago. Not only is rapid delivery of the cash for small businesses through their financial institutions imperative, the initial round may only scratch the surface of what may be needed to help keep them afloat. As the economy reopens and the loans expire, no one knows if there will be enough customers standing at the door to generate enough revenue to cover expenses, especially from bringing back jobs. However, one thing we do know for certain is that when we do get to the other side of this crisis, entrepreneurs will revert to the grit and unique ability to manage uncertainty as they rebuild, even if it is from the ground up. Stay safe and healthy.