As COVID-19 continues to impact daily life, small-business owners are managing through economic uncertainty. Nationwide’s latest Agent Authority Study found that small-business owners are very concerned about the economy, as shown in the following statistics1:
- Only 41% of small-business owners believe the economy will improve in the next 12 months
- 53% of small-business owners are concerned about their business making it through the economic downturn
- Seven in 10 insurance agents have spoken to their clients about a recession
Small businesses face unique challenges
The Nationwide Economics team notes the pandemic has impacted the economy, and small-business owners are up against the following:
- Small businesses typically take longer to recover after economic downturns because many do not have the capital to weather an extended drop in sales. It can take several years from small businesses to recover after a recession. Both small and midsize businesses experience reduced employment and investment in operations and higher turnover, in terms of closures and startups, during and just after a recession.
- The COVID-19 recession could increase the amount of time it takes for a small business to recover. The COVID-19 recession has created additional challenges for small businesses due to the lingering medical and economic uncertainty surrounding the event. The early 2020 economic shutdown was a massive nationwide hit — more so than usual for an economic downturn — to service operations, many of which are small businesses. This suggests that recovery from COVID-19 for small businesses is likely to take longer than after previous recessions, even compared to the Great Recession of 2008.
- The economy could rebound quickly, faster than it has in past recessions, but uncertainty lingers. The Nationwide Economics team projects the economy to rebound sharply from the COVID-19 recession with above-trend growth in 2021 and 2022. Still, the lingering uncertainty surrounding public health hangs over the outlook and presents downside risk. This downside, if it does occur, would be felt by small businesses, while the lingering economic uncertainty for many consumers also adds risk to the recovery for the small-business sector.
Prepare your business to adapt
A recent study released by Advantage ForbesBooks found that the adaptability quotient (AQ) of a business plays a critical role in its ability to survive.2 The following tips can help navigate economic uncertainty:
- Consider your plan of action — A recent article from Harvard Business Review notes that small-business owners are more likely to make mistakes when they are strapped for cash. Before making big decisions, give yourself time to consider the current climate and market trends.
- Review and update your continuity plan — Now is a great time to review, update or create your business’s continuity plan. A continuity plan will help you prepare your business for disruption or disaster, allowing you to continue operating through uncertain times.
- Manage cash flow — The U.S. Chamber of Commerce recommends that small businesses keep a close eye on expenses and cash flow during times of economic uncertainty. Explore innovative ways to reach new customers or decrease spending. Negotiate new terms with your vendors, focusing on flexible, short-term contracts rather than long-term commitments.
- Consider a pivot — According to McKinsey, many small businesses will need to make extreme changes to survive the COVID-19 crisis.3 A pivot is a short- or long-term change in a business model that alters what the business does to earn a profit. A short-term pivot could mean you alter your business temporarily in response to changing market trends, such as a pandemic. A long-term pivot may make the most sense for your business, especially if economic and market trends create lasting shifts in the needs and preferences of your target market. As you pivot, make sure to discuss changes to your business model with your insurance agent. They can make adjustments to your policy, if needed.
Don't give up
With the right resources and appropriate planning, your small business can manage — and even thrive — during an unexpected economic challenge.