Coronavirus fallout is 'big wake-up call' for small businesses

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As small businesses and sole practitioners grapple with how the coronavirus crisis transforms society, Sharna Barnes, CEO of Complete Contract Consulting in Riviera Beach, Florida, is the epitome of countless executives across the nation, and the world.

“It’s truly been an economic hardship and I fear it won’t get any better,” Barnes says, the leader of a company that helps businesses win private and public sector contracts. Clients have been delaying payments to her firm, and they’re unable to meet their own operational expenses. Complete Contract Consulting has almost $500,000 in accounts receivables outstanding.

“I might have to lay staff off in order to keep up,” Barnes says, referring to her four employees. “But I'm trying my best not to eliminate positions because it's so hard to get them back, especially when you have a good team.”

Concerns over these choices are rampant among small business owners. According to a new survey from accounting software company FreshBooks, roughly two-thirds (65%) of small businesses said they were either extremely concerned or very concerned about how the coronavirus will affect their business. Another 1 in 5 said they did not feel ready to handle business challenges emerging from the pandemic.

In New York, which has turned into one of the epicenters of the crisis, Brooklyn-based toy retailer PunkinFutz halted its business after New York Gov. Andrew Cuomo ordered all nonessential businesses to close and said residents should stay home.

Since then, the business, which produces sensory play products for children and adults with disabilities, has furloughed half of its 11 employees. PunkinFutz’ CEO Lisa Radcliffe has applied for a small business administration loan as an economically injured business in New York State, but says she does not know what the timing or funding of the loan might be.

“That's extremely hard given the fact that we have absolutely nothing coming in,” Radcliffe says. “This [business] is something we've poured our heart and soul into, so the idea of not doing the right thing by our employees is impossible for me, but the idea of losing the business entirely is just as hard.”

'Big wake-up call'

As businesses shut down and lay off workers in response to the coronavirus, a record of 3.28 million Americans filed for unemployment benefits in the week ended March 21, according to the Department of Labor.

The Trump administration and congressional leaders early Wednesday negotiated an unprecedented $2 trillion aid package designed to help the public and the economy to rebound from the coronavirus pandemic. The bill provides direct help to citizens, businesses, hospitals and state and local governments — including more than $350 billion to aid small businesses. It has been approved by the Senate and needs to be passed by the House.

The financial fallout of the pandemic won’t only have immediate consequences for worker’s compensation and benefits — it could also have a long-term impact on their financial wellness.

Chad Parks, founder and CEO of Ubiquity Retirement and Savings, has specialized in working with small business retirement plans for over 20 years. A majority of small businesses under 100 employees do not offer workplace savings, and typically do not have assets or savings set aside for their business as many are very cash flow dependent, he says. And with nearly 80% of Americans living paycheck to paycheck, many workers do not have personal emergency savings or retirement savings to tap into if faced with a crisis.

“This might be the big wake-up call that everybody's been waiting for,” Parks says. “People need to start putting some money aside for their business, as well as putting money aside as an individual.”

Parks recommends employers who are financially impacted by the coronavirus to keep retirement benefits to the extent that they can. One way to do that is to temporarily stop making contributions to retirement plans.

“If you're a small business and you have a retirement benefit in place, the last thing you want to do is to cancel it or shut it down,” he says. “Because that's just going to have consequences for everybody. It's going to cause more confusion and difficulty for your employees.”

Another concern for small businesses are rising health insurance costs, says Molly Day, vice president of public affairs at the National Small Business Association (NSBA). If just one person gets sick, every employee’s insurance price could potentially go up.

“If you’re Google and five people get sick, that’s not going to put a dent at all on what your premiums cost,” she says. “There's typically a bit more cash flow and liquidity, and those kinds of firms can juggle things around. Small businesses can't, so they're looking at significantly higher rates for pretty much any kind of insurance they have for their business.”

Day says that when put under increasing financial pressure, employers may be forced to choose between continuing to give people a job, or pay for health insurance for half of their staff.

“I absolutely think that health benefits or other employee benefits [can be affected] — everything's on the table,” Day says.

'We have never been in this position'

Challenging conversations like these are painful for micro and small business owners, who often have a close relationship with their employees.

Vlada Von Shats, owner of Russian Samovar, a restaurant and piano bar in New York City, has been forced to lay off 16 out of 20 employees, some of which have worked for her for more than 26 years.

“They get minimum wage, so the majority of the income comes from the customers,” Von Shats says. “I told them to go get unemployment because I knew I wasn't going to be able to pay them. This is more than a crew, this is a family. They depend on this job to pay rent and provide food for their families. So I’m very concerned.”

The restaurant has shifted the business toward accommodating deliveries and pickups. The coronavirus is the most difficult challenge the restaurant has ever faced in its 30 years in business.

“We've had fires, we've had floods,” she says. “We've had almost bankruptcies and bad management. We've had as many issues as possible, but we have never been in this position. The financial loss and the epidemic, that's something you're never prepared for.”

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Coronavirus Small business Healthcare benefits Employee benefits Employee terminations