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Columbia Business Monthly

New Beginnings

By David Dykes

That much-dreaded year – 2020 – is behind us, and now it’s time for new beginnings.

But dark clouds remain on the economic horizon. The pandemic still holds us in its grasp. The jobless need work. If they’re still operating, many small businesses are struggling to recover. Companies must decide if employees should continue to work remotely and meet via Zoom, or slowly migrate back to their offices.

Many stories remain to be told.

Mark Vitner, senior economist in the Wells Fargo Securities Economics Group, said in a recent special commentary that for small business owners, he sees some glimmers of hope in the new year.

Says Vitner:

Amid another spike in Covid-19 infections and a rising tide of local economic lockdowns, the Wells Fargo/Gallup Small Business Index inched up 12 points during the fourth quarter to 72. Unlike the prior quarter, when the increase was entirely due to a rise in expectations for future conditions, small business owners’ assessment rose for both current conditions (+5 points) and expectations for the future conditions (+7 points) over the quarter. 

The outlook for small business is dependent upon how severe and prolonged the current resurgence in Covid will be, the speed and efficacy of the rollout of vaccines, the ability of small business owners to withstand another period of slow or nonexistent revenue growth and the public policy response. 

Many have long expected a resurgence in Covid infections between Thanksgiving and February. The spike came a little earlier and has been more widespread than expected. Hospital capacity is stressed and consumers and businesses are pulling back from activities requiring a high degree of personal contact. He expects the current surge to peak in mid-to-late January and look for hospitalizations to lag a couple of weeks after that. 

That means small business owners will need to prepare for another lull in business over the next two to three months. But even after mass inoculations begin, it will take until at least mid-to-late spring for enough people to be immunized in order to put the virus safely behind us.

The latest Covid spike will test many business owners’ resilience, Vitner says.

He adds:

Many businesses have made extensive investment in their facilities to enable them to incorporate social distancing and allow them to operate safely, only to see blanket operating restrictions put in place impacting all businesses in their industry. Others have struggled as few customers have wanted to venture out during a time that Covid cases are spiking. 

The added investment required to meet social distancing guidelines and reduced sales are a toxic mix for many businesses and there are only so many places that business owners can look to for additional cost savings.

The universe of small businesses is incredibly vast, however, not only including independent retailers, restaurants and coffee shops but also hotel operators, car dealerships and restaurant franchisees. Larger small business owners are tending to deal with today’s challenging business environment much better than smaller businesses. Larger firms typically have more controls and better-defined operating procedures, often spelled out by franchise agreements. They might also have better access to personal protection equipment (PPE) than smaller firms. 

And he continues:

Covid’s economic impact remains the most pressing issue for small businesses. Business owners are most concerned (29 percent) about how much consumers will pull back from economic interactions in coming weeks, as well as how local governments will implement operating restrictions. 

Fears of contracting the virus have resulted in more online business and have also cut into travel and leisure spending. Attracting new business is the second-highest rated concern, cited by 13 percent of small business owners, followed by concerns about financial stability (12 percent). Together, the top three concerns highlight how significantly Covid has adversely impacted small business, with 54 percent ranking concerns tied to the pandemic as their most important issue. 

Vitner believes that 2021, however, will mark a year of recovery for small business. 

He says business will likely start the year on a fairly weak and uncertain note. By spring, however, vaccinations should be in full swing and the winter spike in Covid infections should be diminishing. Another round or two of stimulus should also be in the pipeline. By mid-year, he expects the pandemic to largely be behind us and look for overall economic growth to gain considerable momentum over the summer months. Business will not be back to normal in 2021, however. 

Conducted just days after the U.S. presidential election, Gallup says the survey showed 41 percent of small-business owners said the election results made them more optimistic about their business going into 2021 -- while an equal percentage, 40 percent, said the election results made them less optimistic. Nineteen percent of owners said the election results caused “no change” in their optimism going into 2021.

The bottom line, according to Gallup, is that the Covid-19 pandemic continues to negatively affect small-business owners in the U.S. But Gallup also says owners have, for the second straight quarter, become more positive about key business metrics such as their future financial situation, revenue, cash flow, capital spending, hiring and credit. However, the American analytics and advisory company says small-business owners expect to be in a difficult place for the foreseeable future, with full economic recovery some ways off

Elsewhere, the sixth annual First Citizens Bank Small Business Forecast found that despite widely accepted uncertainties as a result of the coronavirus pandemic, many small business owners remain optimistic about the economic outlook for two to three years. Of those polled, 66 percent of respondents are optimistic or very optimistic for the long-term economic outlook, which remains on par with pre-pandemic sentiment from 2019 (68 percent).

“This year has been challenging and unpredictable for the world, but our report shows that small business owners have not let the challenges of today impact their positive perception about our economic outlook,” said Doug Sprecher, director of sales strategy at First Citizens Bank. “The small business community shoulders a significant amount of responsibility and has continued to showcase its resiliency year after year. Our goal is to leverage this data to better equip business owners with the insights and counsel needed to plan for and achieve greater business performance in 2021 and beyond.”

The bank’s forecast said that when compared to the near-term economic confidence, small business owners are less confident in the conditions for the next 12 months. Of those surveyed, 57 percent reported being confident or very confident in the United States’ near-term economic conditions. This is a significant decline from 2019, where 66 percent of respondents felt confident about the immediate economic outlook.

Businesses with a history of less than 10 years (77 percent), those with more than 51 employees (86 percent) and business owners ages 18-34 (89 percent) are most confident in their ability to grow. This year, small business owners in California showed the steepest decline in near-term economic confidence with 49 percent (a 24 percent decrease from 2019) stating they were very or somewhat confident. Conversely, the outlook of their counterparts in Wisconsin (64 percent) and South Carolina (65 percent) remained relatively flat in year-over-year response to near-term economic conditions, indicating a steady confidence level about small business owners in these regions.

Even with a decline in confidence over the next 12 months, the bank found the entrepreneurial spirit of small business owners indicates continued resiliency. Although 67 percent said their business has been negatively impacted by Covid-19 and 79 percent feel personally responsible for the financial stability of their employees, small business owners reported having more confidence in their ability to grow their business in 2021 (69 percent) than they do in the overall economic outlook for the U.S. (57 percent). Of those planning to grow and expand their business in the next 6-12 months, 44 percent indicated they will do so by hiring more employees and 26 percent noted investments in technology.

Lynn Harton, president, chief executive officer and chairman of the board of United Community Banks, Inc. (NASDAQ: UCBI), a bank holding company headquartered in Blairsville, Georgia, with executive offices in Greenville, said in a recent interview that he believes that small businesses, far from Washington, are finding solutions.

But he credited those in the nation’s capital city with making a difference. 

“For all the dysfunction in Washington, they actually did a really good job, both sides (of Congress) coming together, with the CARES Act and what the Federal Reserve did to stabilize markets,” Harton said. “They learned a whole lot during the Great Recession. They acted quickly – more quickly this time. They acted bigger.” 

He added, “We would not be sitting here in as good an economic situation today if they had not done those things.” 

The Paycheck Protection Program, Harton said, was a success and gave banks a chance to show they care about their clients.

With future federal aid, he would err on the side of financial assistance for small businesses, but he’s not opposed to another round of direct payments to or extra unemployment benefits for Americans. 

“People losing their job through no fault of their own, or people losing their business through really no fault of their own through a government-mandated shutdown, the government has an obligation to stand in,” Harton said. “If the government says you can’t open your business, you’ve got to have some kind of support there for them.”

I agree.


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