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November 22, 2024
Small Businesses Are Struggling To Stay Open: What Can Be Done To Save Them?
Small businesses in America seem to be facing continued hard times, even after the effective end of the COVID-19 pandemic — a pandemic that forced one-third of U.S. small businesses to close, according to Vice President Kamala Harris, a statement ranked as “mostly true” by PolitiFact. Citing Yelp data from early on during the pandemic (September 2020), the Foundation for Economic Education indicated that 60% of small business closures as a result of the lockdowns would be permanent.
The years since have not been particularly kind to Main Street, either. Persistent inflation, relatively high interest rates, a housing and cost-of-living crisis, and other factors have curtailed consumer spending habits, a reality that directly impacts the ability of small business owners to produce revenue. Businesses have also reported difficulty in finding qualified employees, as Fortune reported earlier this year.
Per Fortune, National Federation of Independent Business (NFIB) Chief Economist Bill Dunkelberg laid a great deal of the problems facing small business owners at the feet of macroeconomic pressures.
“Owners continue to manage numerous economic headwinds,” Dunkelberg said, adding that “inflation has once again been reported as the top business problem on Main Street.”
Small Business Sales Are Down, Prices Are Up, and Optimism Remains Below Historic Levels
According to FOX Business, quoting data from the NFIB, “A seasonally adjusted 20% more [small] business owners reported lower sales in the past three months, the lowest since July 2020.” The outlet further shared that 26% of small business owners polled had increased their prices in October.
The NFIB data did indicate a very slight uptick in its Small Business Optimism Index (rising 2.2 points in October to rest at 93.7), but there was one major caveat: That figure still represented the “34th consecutive month below the 50-year average of 98.”
A recent report from PYMNTS painted a similarly gloomy picture. Data from a PYMNTS Intelligence report suggested that nearly half (45%) of U.S. small business owners forego their own paycheck due to a lack of cash flow and that nearly a quarter (22%) struggle to pay basic bills — a situation that could mean imminent closure for these enterprises.
What Can Be Done To Save America’s Main Street, if Anything?
While most recent reports have taken on a pessimistic tone, several solutions are being floated in terms of lawmakers and entrepreneurs that may work to improve the current state of affairs concerning U.S. small business.
For its part, on Nov. 20, the NFIB sent a letter to Congress requesting a list of desired legislative priorities affecting its membership. Chief among its requests:
- Make the 20% Small Business Tax Deduction permanent.
- Eliminate or delay the Burdensome Beneficial Ownership reporting mandate for 32.6 million small businesses.
- Eliminate red tape for small businesses through bipartisan legislation like H.R. 7198, the “Prove It Act.”
Though not all of the NFIB’s asks are enumerated above (others pertained to adding competition into the credit card swipe fee marketplace and preventing unintended 1099k triggered audits), the organization was clear in its demand to be heard.
“Small business uncertainty is at an all time high, and much of this stems from the fact that there is a looming tax hike on over 30 million small businesses in just over one year,” said NFIB VP of Federal Government Relations Jeff Brabant.
“With the 20% small business deduction scheduled to expire, and burdensome beneficial ownership reporting requirements just around the corner, now is the time for Congress to proactively address the key issues impacting Main Street and prioritize legislation to help American small businesses grow, invest, and flourish,” Brabant added.
PYMNTS focused on a different angle, suggesting that automation of accounts payable (AP) and accounts receivable (AR) would vastly improve cash flow and operational efficiency. Furthermore, the outlet suggested that by “consolidating multiple cash flow tools onto a single platform,” small-to-medium businesses (SMBs) could save 20 hours per week in wasted labor.
“SMBs should consider adopting digital solutions and collaborating with FinTech providers. Automation can optimize working capital management by predicting optimal times for AP and AR processes and encouraging shorter payment cycles. By unifying cash management tools and using technology, SMBs can streamline operations and promote growth, moving from financial instability to a more prosperous future,” PYMNTS stated.
Boomers May Hold the Keys to Small Business Prosperity — If They Opt To Spend
Veteran Wall Street economist Ed Yardeni provided his thoughts on the subject, as Fortune outlined.
Not only will fading inflation and the proliferation of AI into various economic sectors help to spur growth, creating something of a new “Roaring ’20s,” as Yardeni indicated, but the immense amount of wealth still held by baby boomers ($76.2 trillion of a total U.S. household wealth estimate of $156.2 trillion, as of late 2023) could unlock further prosperity. That’s if they opt to continue to spend.
“This helps to explain the resilience of the economy and why there hasn’t been a consumer-led recession over the past two years, as was widely feared,” Yardeni wrote. “The baby boomers watched a lot of ‘Star Trek’ during the 1960s. They certainly took to heart Spock’s mantra ‘Live long and prosper.’ He should have finished the thought with ‘Then retire and spend it all before your expiration date.’”
Discussion Questions
What can lawmakers, and entrepreneurs themselves, do to improve the outlook for U.S. small business in the immediate future?
Will the “Great Wealth Transfer” from boomers to younger generations usher in a new economic era for small business?
What are the most common reasons small businesses end up closing their doors?
Poll
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Mark Price
Adjunct Professor of AI and Analytics, University of St. Thomas
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Adam Dumey
Global VP - Retail, World Wide Technology
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As far as the government is concerned, the best way to help small businesses is by creating a growing economy that isn’t onerous in terms of taxation and regulation. The government should then step back and allow the talented people running businesses to do the rest.
As President Reagan once said:
“Someone asked me to explain the difference between a small businessman and a big businessman. And my answer was that a big businessman is what a small businessman would be if only the government would get out of the way and leave him alone.”
Ultimately, the success of small businesses is based on the relationship relationships that they can establish with their customers and the experience that customers have in their location while purchasing distinctive, higher value items.
This formula has mostly stayed the same. Inflation has indeed squeezed the pocketbook of middle-class Americans substantially, leading them to forgo extravagances and focus on meeting their budgets. At the same time, there is a desire for unique and distinctive gifts, particularly in this holiday season. We have seen a decline in interest in the homogenized offerings of big box retailers, which presents an opportunity for small retailers to distinguish themselves.
Small retailers must reinforce their connection with their best customers. Leveraging technology, which is more affordable now than ever, to free up time and increase customer connections will be critical.
By using this approach to focus on reinforcing relationships with Best Customers, small retailers have the best chance for success.
Excellent points Mark. While government assistance or easing of regulations for small businesses would be helpful, small businesses have no control over this. They need to focus on what they can control and differentiate from the big box retailers – personalized relationships and local or customized product assortments. Treating your customers like they are truly special will go a long way in creating loyalty and offering them unique products that are not available at the big retailers will help you differentiate and, hopefully, survive.
What can lawmakers, and entrepreneurs themselves, do to improve the outlook for U.S. small business in the immediate future?
It’s obvious: raise tariffs, deport cheap labor and cutback on anti-trust enforcement. What? Oh, I’m sorry: I thought the question was “how do we worsen the outlook?”
Small businesses, of course, are always struggling to survive…indeed that’s almost definitional, since successful small buinesses (often) grow into larger ones. Certainly the Pandemic was a watershed for marginal ones – and even many that didn’t seem marginal until it happened – but that’s largely past now (if not necessarily in its impact.) Ultimately it’s up to each owner to control their own future thru prudent management: counting on various “waves” which you dont control – and may not happen – is a risky proposal.
A week before Small Business Saturday, a day every one of my clients and every other indie business is prepping hard for, I am not going to entertain the question, “What Can Be Done To Save America’s Main Street, if Anything?”
Don’t forget that small businesses are the backbone of our economy, they make up 62% of the jobs in America. These people have skin in the game; if the business fails it means much more than a lost job. They deserve more respect than they are given, and certainly more than that “If anything?” headline.
Your politics here are tiresome
Sorry Georgeanne, that was meant for David below.
Thanks for clarifying, Bob! Your comment threw me.
It would be disingenuous of me to discuss my optimism for eminent recovery of small business without acknowledging the favorable policies to be once again implemented by President Trump that support them. To suggest that these policies are a significant factor would be an understatement.
Small businesses thrived during Trump’s first term, particularly prior to the pandemic, and I believe they will experience a robust resurgence in his second term. Here are a few basic and general reasons for this optimism:
President Trump is expected to regain control over inflation and interest rates, both of which are critical for the success of small businesses.
The regulations that have been imposed on small businesses over the past three years have hindered growth and profitability to some extent. These regulations are likely to be lifted.
The overall economy is anticipated to return to a state of health similar to that of the pre-pandemic period, which will undoubtedly benefit small businesses. All boats rise with the tide.
Tax reductions for small businesses will further contribute to their recovery and profitability.
Notably, people of color established more small businesses under President Trump than during any previous administration, and I anticipate that this trend will continue.
I am optimistic and genuinely excited for the future of small businesses, as prosperous times appear to be on the horizon once again.
“SMBs should consider adopting digital solutions and collaborating with FinTech providers.” Easier said than done. There is an uneven playing field between local SMBs and regional / global chains. Operating at the latter’s scale affords resources to bring in specialized talent and technology that is just not possible for SMBs; however, SMBs maintain an invaluable advantage that can’t be easily replicated by larger players – their intimate understanding of local community dynamics, customer preferences, and neighborhood relationships built through years of personal interactions. This is their best bet to thrive (survive?) in a world dominated by digital engagement and convenience shopping.
No doubt that post-covid customers have a different buying/shopping behavior, but the reasons small businesses succeeded in the past will still work. The focus needs to be on personalization and localization. The small business has the best opportunity of truly knowing their customers. They can be part of the community. I have case studies from Ace Hardware that shows how a small retailer can go up against the big box stores and win – even though the box stores are ten times the size of an Ace Hardware, has a 30x bigger advertising budget, a larger selection, and in some cases, lower prices. They still win.
Love this example. We learned about Ace Hardware in business school and it’s a wonder to see the chain is still devoted to relationships and customer satisfaction.
The collapse of local print and broadcast media – due to elimination of ownership regulation & the hyper-consolidation that ensued – has left local small businesses without cost-effective means to advertise and promote. When PE cut most of the staff from local papers, the “news product” that remained was mainly national wire stories, which could be just as easily viewed online, so no surprise that readership collapsed & even more staff were laid off. Same with local TV and radio – now mostly programmed from far away (so why not just listen to Sirius XM?)
Reinstate the ownership caps, get Big Equity out of the newsroom so people have something worthwhile and local to read or listen to, and then small local businesses will have an audience to talk with. The media & advertising landscape today (thanks to Republican administrations and Congresses) is totally rigged in favor of national chains who can buy time on thousands of stations, crowding out any chance for the small guy.
Assuming the Government is serious about helping small business it needs to dramatically reduce regulations along with the current tax burden at all levels. A tall order, but there is always hope.
I continue to hear from consumer facing small business owners the biggest challenge in making a profit and operating successfully is usually a mix of government taxation, added requirements, or a residual of policy actions. At some point retail prices can only go up so much before sales wane. At some point removing convenient street parking does dampen customer counts.
Every neighborhood is better when small businesses flourish. Even tax revenue receipts to local governments are stronger when they do well. It should be top of mind for politicians to remove barriers and rethink unintended policy consequences so small businesses can succeed.
There is not enough talk about the economic impact of SBA EIDLs provided during covid that then came due. This is why we continue to see our neighborhood favorites close despite having relatively good traffic. Nearly 90 percent of loans went to small businesses with 10 employees or less. It wasn’t like these companies were getting rich from their businesses; more often than not they were making just enough with little to no room to absorb the their significant loan payments. Couple this with all the other points mentioned, it’s not hard to see why this problem exists. And it’s heartbreaking.