The Colossal Cost of Coronavirus: Small Business


It could be said that 2020 has been defined by one central event: the coronavirus pandemic. While there have been a plethora of additional political and financial issues during the year, each of them have a root connection to the pandemic. Across the world, countries locked down in order to protect the health of its citizens. However, some countries took its mitigation to further extents than others. Some countries, like Israel, have even locked down again. Arguably, however, small business have seen the worst since the pandemic began.

While health officials have argued that quarantining and limiting social interaction is essential to public health during the pandemic, they have been costly in many other ways. There have been endless articles, studies, and even books written about how costly this years’ coronavirus lockdowns have been. In this new article series, I am going to write about the total cost of the coronavirus lockdowns, breaking it up into specific subjects:

  1. Small Business
  2. Sports Leagues
  3. Entertainment Industry
  4. Governments

The pandemic has decimated all of the above categories . This week, we are going to focus on the toll the pandemic has taken on small business, in the US specifically. 

How has Coronavirus Impacted American Small Business?

This is an extremely broad question, and it is difficult to choose where to begin. The pandemic has affected nearly every small business. Some were affected directly, like restaurants. Others were impacted more indirectly- think wedding photographers. When the pandemic began in March, the following industries were required to shut down:

  • Restaurants, Bars, and Food Services (takeout still allowed)
  • Entertainment, including:
    • Movie theaters
    • Bowling alleys
    • Live theater
  • Sports venues
  • Concert venues
  • Hair Salons and Beauty-related shops
  • Gyms
  • Museums

While this list isn’t exhaustive- the idea is clear: any business that was deemed recreational rather than essential was ordered to close. The remaining businesses, deemed “essential businesses”, were allowed to remain open with certain precautions.

A grocery shopper taking proper precaution during the pandemic.
Grocery stores are taking precautions, such as requiring masks, to help stop the spread of coronavirus.

The Small Business Costs of Coronavirus

With so many businesses closed and people’s livelihood on pause, the American people needed relief, and fast. The government utilized the SBA to facilitate the Paycheck Protection Program, or PPP for short, to help keep businesses’ payroll flowing while they were closed. 

This relief came in two rounds: round one provided $349 billion of relief for small businesses. This round was gone within two weeks, and another $310 billion was appropriated shortly after. In total, over $650 billion was set aside from the government in order to help relieve small businesses during this time. This was only a small part of the $2 trillion CARES act bill, which provided relief for larger corporations and individuals (this will be covered in a future article). Below is a breakdown of how PPP money was delegated to industries.

An industry breakdown of small business relief funding through the SBA during the pandemic.
Breakdown by industry of how PPP was distributed to small businesses.

Something sticks out in this chart- however. How did Health Care, a service that seems to obviously be essential during a pandemic, net the highest amount of dollars from PPP? This is because the Health Care sector includes all types of healthcare, including non-essential. Across the country, elective surgeries were postponed. For many practices, such as an orthopedic surgeon, elective surgery is the lifeblood of their business. This, along with the high salaries doctors bring, is why PPP dollars were directed heavily towards this sector. 

Safety Costs

Coronavirus is also causing businesses to become further entrenched in costs by adapting to the new coronavirus safety regulations. In order to safely open, governments across the country have rolled out mandatory rules for businesses. This includes plexiglass shields between employee and customer, ample space between customers, and other precautions. 

These modifications are costing small businesses a fortune, with Axios reporting that these expenses are costing small businesses 1-2 months worth of profit. These same businesses were forced to close for months earlier, which exasperates the struggle.

Closing Permanently

While the above issues have been a monumental struggle, the businesses that can reopen are considered the lucky ones. Besides those who have perished due to the virus, small businesses have been the largest casualty from the pandemic. 

According to Yelp, 60% of restaurants that were open on March 1 have shut down permanently. The majority of those are in California, Texas, and New York. While restaurants were able to still serve takeout, the complete closure of dine-in was a death knell for over half of the restaurants in the country. 

In the below chart, other industries that were shuttered are outlined. Similar to restaurants, nearly 48% of retail businesses were forced to close. While states are continuing to reopen, many owners find themselves so deep in the hole that safely reopening, with all the expenses outlined above, is not worth it. 

Yelp has charted the extent at which small businesses have permanently closed.
Chart from Yelp outlining the extent of small business closures.

How to Prepare for the Next Disruption

If you were to go back to Jan 1, 2020, no one would have predicted small business Armageddon. This pandemic was once in a lifetime, so it is hard to look back and see what could have been done in order to better prepare for this event.

Coronavirus has shown that small businesses are financially fragile. According to a survey done by the PNAS, the average small business with expenses around $10,000 only had cash on hand to last two weeks. While the CARES act and PPP helped save many small businesses, it wasn’t enough to fully shield the fallout from the lockdowns. 

However, what a business owner can do is investigate where the weaknesses are in their business. Some examples include finding ways to reduce expenses while times are good, as well as putting aside extra money for an emergency fund. Finding small areas of improvement can add up very quickly, and it could leave you more prepared for the next disruption or downturn we see in the future. Personally, you can take initiatives outside of your small business to help budget- check out Joe’s article on budgeting here.

Where do small businesses go from here? As of September 2020, it is a question that is unknown. Politicians and public health officials threaten additional lock down measures almost daily. While many of these lockdowns have helped with the initial spread, small business owners have made it clear that not all of them are going to willingly shut their business down again. 

Next week, we will cover how coronavirus has affected sports across the country, from little league to the MLB. Every organization has taken a different approach- we will investigate which were successful and which leagues missed the mark. 

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