Washington Times

Many small businesses will fail in the next few months, but not because of COVID-19

By April 22, 2020 No Comments

(This post originally appeared on The Washington Times)

I have a friend who owns three restaurants in Philadelphia. It’s a very profitable family-run business and over the past few years, buoyed by the strong economy, business has been great for him. Until, of course, the pandemic. Now he’s closed. But don’t worry, he’ll be back. He’ll be fine. Why? Remember Darwin.

The current COVID-19 pandemic is causing a deep recession that will go on for months and although many recessions come about for many different reasons, this recession will be like all the others in at least this one regard: The fittest small businesses will survive, and the weakest ones will die. You will know who the victims are come autumn. You’ll walk around and see their boarded up shops and restaurants. You’ll hear the sad stories from friends or read about them in the news.

My friend will not be one of them. That’s because he is one of the fit. How do I know this? Because I see how he runs his business, and his life. His restaurants consistently serve good, if mostly average food in a very consistent, if mostly average manner. He is a consummate penny pincher and expense hawk, even in the best of times. Not that he doesn’t spend when needed, but he’s careful not to overspend. He treats his employees and suppliers well but he will never overpay and has never been extravagant. Over the past decade he has built a small mountain of cash that he’s slowly stored away in various mutual funds and properties separate from his business.

An experienced entrepreneur in his 50s, he also saw this coming. Two days before the city announced that it was forcing the closure of all shops and restaurants, he had already closed. He has since maintained a skeleton staff to keep his facilities maintained and offer a small take-out service. He has applied for all the federal relief available. A smart business owner, he’s already figured out how to fund his now drastically reduced overhead for the time being. But his thoughts aren’t just on the present. He’s already thinking about the future.

And the future isn’t so rosy.

He knows that even when the city removes its shutdown order and the country “reopens” the economy that his business isn’t going to be the same. Why? Because he knows that there are three big things still missing before his customers will comfortably return to his restaurants: Tests that can determine whether or not people have or had the virus, drugs and therapy that treat the virus and, of course, a vaccine to minimize the risk of ever getting the virus.

How long until we get these three things? He doesn’t know and, as expected, neither do the experts. Tests are being manufactured right now by dozens of firms, but the accuracy of some of those tests is being questioned. Drugs and treatments for the infection are being attempted, but their success is anecdotal. Potential vaccines are being tested on humans, but those medications are easily a year to 18 months away.

My friend’s business will only return to normal once all these things have happened. That way his customers and employees can get back to their lives, knowing that, like the flu, there are genuine options available to prevent the coronavirus and treat them if they were to contract COVID-19. But we still have a way to go.

So what does this mean for my friend and the millions of other small business owners like him? It means that it’s going to be a very long slog until things return back to February 2020 levels. Many business owners will need to work hard throughout the rest of the year just to keep the lights on. Most will. They, like my friend, know that this will not last forever and they’ll ultimately recover. But they also know that that won’t happen until there’s testing, treatment and a vaccine. They understand. They’ve always understood.

Sadly, there are many small business owners who never understood. These are the businesses that will not be around after this is over. They operated on a shoestring. They didn’t have cash reserves. They overextended and overpaid. They didn’t plan or look ahead. They accepted the good times as long-term reality.

They won’t fail because of COVID-19 and the recession that it caused. They will fail because they should fail. They rode the wave of a booming economy that generated enough disposable income to hide those dubious ventures and marginally-run operations. But when that income dries up, and the economy slows, those business owners will discover that they’ve been fooling themselves all along. They weren’t fit. They were actually weak. And their businesses will die. It’s like a ritual cleansing that has to happen whenever a downturn occurs.

My friend, however, will benefit from this cleansing. He’ll ultimately emerge from this recession licking his wounds, but still strong enough to fight another day. Darwin will have won. The fittest really do survive.

 

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