I understand what you are saying and I tend to agree with some of it (the excessive spending of many owners and that being a good X doesn’t make you a good businessman) but I think you are understating several things.
First, while yes, businesses need to have reserves to weather some lean times, that is far different than the government ordering you to close down entirely. Budgeting for a pandemic was a class I was hungover for in business school and must have missed it.
Further, in addition to the forced closings, even the reopening is just slowing down the slide into bankruptcy. No restaurant or bar can survive on 50% capacity. Sure, you have the slow Tuesday afternoons which are made up with the jam packed Friday and Saturday nights. Now there are no jam packed Friday and Saturday nights.
You also have the problem that much of your customer base is scared to go out while others will not go out due to the restrictions. My wife and I love to go to Vegas for the whole experience, but with the restrictions, we’ll go next year. Not that the restrictions are not a good idea, but I’d rather save my money until I get the real deal.
So, in short, I think you are being a bit unfair to small businesses who never anticipated something of this magnitude.
I’m not sure what’s happening in my neck of the woods (Brooklyn,NY).
There are plenty of businesses that have been closed since NYC basically shut down. Maybe they’ll be opening up soon. Maybe they went out of business two months ago, but the signs are still up. Can’t tell.
That said, most places are sort of semi-open already. The supermarkets and drugstores never closed. Smaller food retailers never closed (fruit and vegetable stores, fish market, etc.). Many restaurants appear to be doing a thriving pickup or delivery business. Of course, I can’t see their books – I can’t tell how badly they’ve been hurt. But they’re still in business.
The two local Starbucks opened a few weeks ago. You can’t go into the store, but someone will take your order at the front of the store, then bring you your coffee at the door.
I’ll be surprised if some small operations get through this. The independent clothing stores. Gift stores selling tchotchkes. Very specialized stores – there’s one that sells nothing but yarn, for example. Toy stores.
All in all, I think this neighborhood did better than most NYC neighborhoods.
Our favorite little Mexican taco and roast chicken joint a couple of blocks from home closed. We are now in a strangely roast chicken-free section of the neighborhood. This area is chock-full of little mom-and-pop immigrant-owned joints; they are going to have a hard time.
I agree that we don’t have to pay off our debt and sorry if that was somehow implicit in my post. Public debt was actually a great advent and we’ve used it ever since the founding of our republic.
I also agree that we can print our way out of most recessions - but not all. There has to be confidence that we will honor our debts, and unfortunately, the kinds of debts that we’re racking up are eventually confronted with difficult political decisions. At that point, it’s a matter of who pays for the massive debts.
As a small business owner, I follow the small business subreddit and we talk about this from time to time. There are several issues, not limited to:
warehouse and especially retail leases are expensive and they generally commit you to a 3-5 year lease contract. Month to month leases are rare. It takes a large sales volume to be able to pay the lease and still make a profit. Better capitalized companies (i.e. generally larger) can do this, but very small (i.e. mom and pop) can’t.
commercial leases require a personal guarantee. That means that if you sign up for a 5 year lease but go out of business in 1 year, you are still required to pay the lease for the next 4 years. Out of your personal account if necessary. If you have a very forgiving landlord and they can find another business to go into the space quickly, they may let you out of the contract, but that’s pretty rare to my understanding. I’ve heard (and it seems just by looking around my area) that they’ll leave a space sit empty for years rather than take in a tenant for a low price. The personal guarantee clause in the contracts also allows them to leave it empty - you’re paying for it!
The more experienced business owners recommend having 6 months of expenses set aside in your business account to hold you over in a bad economy. I don’t know what an average lease is, likely there isn’t an average because there’s so much variation in shop size and configuration and amenities. But say one month’s lease payment is $12,000, it means you should have at least $72,000 in the bank. But that’s just the lease expense, not counting marketing, utilities, insurance, cost of goods, etc.
I started my online shop with no loans and operate it out of my house so that I wasn’t over-capitalized from the start. It’s going pretty well now, and my only debt is a credit card that I pay off monthly mostly to establish business credit history. I dream about moving it out into a warehouse or retail space but all of the above is very discouraging. Basically doing it the way I did provided me a very low barrier of entry. I really don’t know how a small business owner can be successful by getting a $$$,$$$ loan for capitalization of a brick and mortar space and expect to dig out of the financial hole in less than 10 years. And then how do you even stay in business for the 10 years while you dig yourself out!?
Not yet, but that’s mainly because I don’t frequent too many mom and pop shops. All the ones I do frequent are still open. And I’ve been going to them regularly (pet store, restaurant pickups), to give them as much business as I can.
There is a tiny brewery that got hammered because of the way things were calculated. Most of his space is devoted to brewing. There is a small bar that seats six, and a few large tables all squished together.
When he was allowed to reopen, the number of people he could have inside at one time was calculated based on square footage and the number was less than one. He is still brewing, selling growlers curbside, but he will probably go belly up soon.
I am quoting this message for reference, but this note applies to all in this thread. I am not singling out glowacks, just providing an example for the purposes of the note.
The national debt and economics in general are definitely related to the OP, but they are also HUGE topics and could easily overwhelm this thread. Let’s try to keep things focused on small businesses and the effects of the pandemic in this thread.
This doesn’t mean that you can’t mention debt and other economic issues, just keep it directly related to Mom and Pop type businesses.
If you want to focus on the economy as a whole and how it is affected by the pandemic, feel free to do so, just not in this thread.
I’m using social media as a good way to judge if the smaller businesses I used to patronise are coming back.
I figure if the small sandwich shop in the my old office building is sending me a an email with a multi paragraph lecture about race, they’re still out there and hoping to reopen.
Other places have at least posted throwback pics or wish you were here messages.
I’m afraid I’m not so optimistic about places that have been silent since the middle of March. It could very well be that employee who handled social media decided to leave Chicago and hunker down elsewhere. And, I do know one local restaurant that has their Twitter account suspended because some employee went rogue and called state and local officials lots of names all with 4 letter words.
Oh sure, I agree that this kind of disruption is going to test the reserves of even the most fore-thinking businessperson, and that’s why the government has stepped in with massive loans forgivable under certain conditions. Those are going to help tide businesses over while they figure out new business model in the post-pandemic world, and pay their workers while everything was shut down because of (perhaps) excess caution while we still weren’t really sure what was dangerous and not.
The point is that those that were living on the edge of survivability when the crisis hit despite it being a long period of prosperity are going to quickly fold because even the government programs are probably not going to be enough to help them in the long term, and anyway they’re probably going to come too late. Those are the types of businesses recessions “need” to weed out.
It really depends on the industry and how well prepared your local buisnesses are.
As a dog grooming buisness, I obviously was hurt by the shutdown, but now that we are able to reopen, it’s pretty much back to normal. We wear masks, I disinfect everything, we do more online payments, and I don’t get to sit around and chat with clients.
The liquidity given to the banks helps quite a bit as well. We were able to refinance all of our debts into one loan that was at a lower interest rate than any of our previous liabilities.
We also got the PPP Loan. My understanding is that it will all be written off at the end, but even if not, the terms are good enough that it’s still a pretty good loan.
I am losing a bit of money, we are not operating at near full capacity or efficiency, but that’s what the PPP loan is for, to allow us to operate safely while not going out of business. Once that is taken into account, I’m actually doing relatively well.
There are a couple other businesses near mine that are not. One was a pottery place that just closed on the shutdown and never reopened. Then there is the bar, and he seems like he wants to be optimistic, but he certainly sounds concerned. We have a little restaurant, but they were here when the building was built, and have an insane lease that they could probably pay with 10% sales.
Bars and restaurants, those are what we are really going to be losing. And they make up a pretty significant fraction of small businesses and small business employees.
You do realize that the US Government has a bond rating, just like every other bond-issuing entity out there? It’s AA+ (S&P), and that’s a recent thing. Historically it’s been AAA. Which means that the expectation is that if you buy a US government bond, the likelihood of them paying it off is VERY high. Currently there are only two AAA rated entities- Microsoft and Johnson and Johnson. In other words, there are only two entities rated as a better risk than the US Federal Government.
And it’s not “debt” in the sense of a single monolithic mortgage. It’s more like millions of small debts that come due at different times. So all the government really has to do is deal with the immediate ones, not all at once.
As for the OP, I’m in Dallas too, and I haven’t seen quite what he’s describing. Granted, I haven’t gone too far afield, but it seems like a lot of restaurants have been scraping by with takeout, and the few mom & pop stores that aren’t restaurant or food related seem to have opened up, etc… even some that were already reeling from tornado damage (The Toy Maven in particular…)
I have a feeling that what’ll happen is some of the weaker bars & restaurants have already closed, some will continue to struggle and close, and some will survive. But since the bar/restaurant scene is such a ferment of entrepreneurship as well as brutally cutthroat, this won’t make a dent in the total number once we’re a year or so past the end of the lockdowns.
Thanks for the info jcWoman. I play music at a little coffee shop. I think the owner is pretty diversified in real estate - think they own the building as well as others. But I never perceived the coffeeshop as exactly making them rich in the best of times.
But I was immediately sympathetic to the small independent non-food shops. A camera shop, a game store, small boutique clothes stores… I gotta figure those are pretty much shoestring operations at any time. And I never really understood why they had to close (but we COULD buy guns…!)
Thank heavens I never had an entrepreneurial spirit. It takes a special kind of guts - or crazy - to invest in a storefront business, and wait for your expenses to walk in the door.
I don’t know that it has to be a weak restaurant to close. They were closed by law for months already.
Now, they are open, but not able to run at full capacity. I spent a bit of time in food service, and I know that a restaurant is usually losing money until it reaches 75%. If they just legally are not allowed to operate at more than 50%, then they just cannot make money.
I’m not sure as to your final point either, I think that by the time we get past the lock downs, people will forget what a restaurant is, and find it kinda weird to eat in a room surrounded by strangers. It takes a while to make or break habits, but this is gonna be a long long while.
Had I gone a different route, and opened a restaurant, I’d have converted my dining room to production space by now, and used it to help to stage and send take out and delivery.
Ours weren’t entirely closed; they’ve been able to do takeout/drivethrough and delivery the entire time. Plenty of nicer sit-down places adapted in a matter of a few weeks, and at least anecdotally based on social media and comments from other people I know, lots of people have been ordering a lot of takeout for the past several months. And now that they’re actually open, they seem to be doing banner business.
People don’t like to cook unless they have to. And they like doing dishes even less. So there’ll always be a market for restaurants, and I suspect like I was saying, that most of the restaurants that are going to fail already have, and that new ones will spring up to replace them in short order. A year or two from the end of the pandemic, and we won’t see any fewer restaurants than we would have, had this whole thing not happened in the first place.
I don’t really think a few months of lockdown are going to somehow change people’s lifetime ingrained habits and preferences. Based on what I’ve seen, more people are interpreting a “measured” unlocking as being more of a “No more lockdown!” free-for-all. Not good for the actual spread of disease, and pretty idiotic, but good from an economic perspective, at least temporarily. And it bodes well for after the pandemic as well.
I’ve heard some bars/restaurants have a lease which is based on an flat rate plus a percentage of sales. This makes sense for Chicago as business usually nose dives after January 1 until spring except perhaps for the Super Bowl, Valentine’s Day and St Patrick’s.
At least deals like that should help, although that’ll also depend on the landlord. In a normal year, a brutal winter means that business picks up and stays busier once the weather turns nice. That isn’t happening this year.
Places you can go and eat in a room surrounded by strangers have been around literally since ancient times. I doubt that the cultural memory of such places is going to be erased in a year or two (and it won’t be that long, restaurants in lots of places have reopened already). Besides, what else are people supposed to do when they’re too far away from home to return for a meal?
There are always a few businesses that really should fail. They are hanging on for no good reason other than the owner/manager needs something to do with their time.
A while back, there was a big hoofla about how fast food restaurants could not survive in small towns unless they were allowed to bring in foreign workers who would put up with shitty salaries and shitty working conditions.
This was in towns that had 5 or 6 shitty fast food restaurants to serve the travelling public. (not locals)
No. If your business model depends on paying shitty salaries to foreign workers in shitty conditions, then you can fuck right off and close down. The dude travelling from A - B and passing through Bumfuck Manitoba does not need to have a choice of 5 shitty fast food places.
If you cannot make a go of it, then goodbye. It’s called capitalism.
Trouble is, these people want the capitalism, but are not willing to pay the employees squat.
You die if you don’t eat, therefore stores that sell food were allowed to open. Walmart sells food (in fact I’ve never bought food from any other store in two decades) therefore Walmart can be open. You’d be in a very bad position if your toilet broke and you couldn’t get parts to fix it, therefore Home Depot is allowed to be open. However the little bookstore the maybe gets 10 people in at a time doesn’t cause similar problems if it’s forced to close.
In Minnesota some stores pushed things a bit. A large candy store stayed open because technically candy is food (as well as the owner allegedly having political connections). A large craft store chain claimed they should stay open because “they sold supplies for sewing masks”.
I understand that some Walmarts in other states were forced to rope off their non-food, non-hardware sections but not in Minnesota.
Places you can go and eat in a room surrounded by strangers have been around