Mercator Blog

Small Business Realities 2020
Date: May 27, 2020
Peter Reville
Director, Primary Research Services

Much has been said about the impact of the COVID-19 pandemic on the American small business. Unfortunately, the news from the small business front has been rather unnerving. Businesses have been closed, workers have been laid off or furloughed, customers are afraid to return to the stores, and more.

Mercator has recently completed its annual Small Business PaymentsInsights survey (amid the pandemic) and some of the results are fairly disturbing, particularly as they compare to what was reported just 12 months ago. Briefly, our Small Business PaymentsInsights survey is an annual survey conducted each spring with a representative sample of 2,000 small businesses across the United States. For the purpose of this survey, we define small businesses as those entities with annual sales between $100,000 and $10,000,000.

The survey gauges the overall mood of the small business community by asking respondents how they think their small business will perform in terms of revenue, profitability, and employment. As the following chart illustrates, the outlook for many small businesses is quite grim. Looking at the proportion of companies predicting growth each year, we see there was some softening in 2019 but a near halving of the results this year.

The COVID-19 pandemic has caused a precipitous decline in U.S. small businesses' attitudes toward prospects for success in 2020 compared to attitudes in 2019.

 Small Business Realities1

 

In 2019 we added a question asking small businesses what are their top concerns. Our purpose was to get a sense of what worries about their businesses keeps small business owners and management up at night. With the advent of COVID-19 and all the issues the pandemic has brought to small businesses, we find that concerns for all aspects of business have risen significantly.

U.S. small businesses' concern about all aspects of their business has risen significantly.

Small Business Realities2

 

 

This graph clearly shows how the mindset of the small business has changed. It is safe to say that virtually every one of the issues listed is now a concern for a meaningful subset of the small business community. Further, in 2019, there was greater distinction in level of concern for the various issues than in 2020, as evidenced by the range of the responses from a high of 36% for cash flow to a low of 7% for strategic planning - a difference of 29 percentage points. In 2020, that range between highest and lowest has decreased to 10 percentage points. This demonstrates that people running small businesses in 2020 are worrying more about operating in the current, pandemic environment. These worries affect their outlook for their businesses.

As small businesses navigate the uncertainties brought on by the pandemic, they often turn to different resources for advice. Last year we added a question to the annual survey to understand who it is that these small businesses rely on for guidance. In the next chart, it is evident that those running small businesses are turning to a greater variety of people to help them run their businesses in 2020 than they had in 2019.

With the advent of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Paycheck Protection Program (PPP), it stands to reason that U.S. small businesses say they are relying more on their banks and perhaps even their financial advisors. Of note, however, is the increase in the number of small businesses that are turning to their employees for assistance. In many situations facing the small businesses in crisis, employees on the front lines can be good sources for practical ideas on how to modify and improve the business. Employees are often the most likely to be affected by any changes, and their buy-in and flexibility are paramount to the successful execution of any changes.

Small businesses are seeking advice from more entities to deal with their concerns about the impact of the pandemic.

Small Business Realities3

Real change year over year and the significant impact it has had on small businesses in the U.S. is evident in the survey finding above. Time will only tell what the lasting impact of the pandemic will be on small businesses and society as a whole.

The small business world has been turned upside down. Many firms are struggling to deal with issues they have never faced before. It is not surprising that the levels of fear and confusion are heightened. Financial institutions and other companies looking to help small businesses get through the current situation and come out stronger on the other side need to consider doing the following:

  • Acknowledge the pain. Make a concerted effort to let the small business ownership and management know you are aware of what they are going through and that you are there to help.
  • Be sincere. Be open, honest, and "real" in any and all forms of communication. All too often, attempts to acknowledge the pain sound hollow and patronizing and are not received well.
  • Be flexible. The current times are fluid, with conditions changing quickly, and you need to move carefully but quickly to meet the changing needs.
  • Listen to the customers. It is critical to listen to the business's customers to understand where you can provide assistance. Implementing a structured feedback process is the best way to ensure that all customers are heard.
  • Look for enterprise-wide solutions. Some of the issues with which small businesses need assistance will require a multifunctional approach to accurately address them.
  • Plan for the future. Eventually, the pandemic issues will fade away and small businesses will look to the future. You need to be thinking now about how you will respond then.

Subscribers to Mercator Advisory Group's Small Business PaymentsInsights research have access to the survey data cited here and to reports from this survey series.