Small business: The backbone of the economy under significant stress – The Average Joe

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    Small business: The backbone of the economy under significant stress

    victorlei

    August 31, 2022

    Small businesses are often considered the backbone of the economy — generating 44% of U.S. economic activity. And if the economy had to pick someone to play it in a movie, it would definitely choose Tobey Maguire.

    The list of small business issues runs long…

    … Declining sales, higher costs from inflation, trouble hiring and difficulty paying expenses, to name a few. While many small businesses saw a recovery in 2021, many have deteriorated this year alongside consumer spending.

    An August Alignable survey of 7,331 small businesses showed:

    • 40% couldn’t pay their rent in full — up from 34% in July — and a level not seen since March 2021.
    • 23% said they were back at pre-COVID sales levels — down from 43% last December.

    Per Alignable’s head of research and communications, rent data gives a full picture of small businesses’ finances (CNBC) — and the picture isn’t looking good. Unlike large corporations, small businesses have fewer resources to compete on pricing and attracting employees.

    Small businesses have low expectations

    An NFIB report showed small business future expectations at their lowest level ever.

    • ~ One-third of small businesses can’t survive for over three months without support or changing conditions — according to a Small Business Majority survey (NYT).
    • 4,392 small businesses said 47% are at risk of closing by fall, according to Alignable’s Small Business Revenue Report.

    But Gene Marks’ small-business consulting firm is skeptical of the 47% number — which would equate to ~15M businesses going under — a difficult scenario to imagine (The Hill). For perspective, ~1.8M businesses went under after the financial crisis between December 2008 and December 2010.

    Investors: Is there a small business recession?

    That depends on the sector. Those related to the housing market are feeling the pain of rising interest rates while service-related small businesses are doing better, per Intuit data.

    Small businesses tend to get hit harder during a recession and are among the first to feel the pain. Between 2007-2012, 60% of America’s job losses were from companies with less than 50 employees.

    Like Maguire’s back, small businesses are in a fragile state, and unless inflationary pressures ease soon, many could start calling it quits.

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