Restaurants, movie theaters and sports arenas aren’t the only businesses laying off employees and cutting hours as the coronavirus crushes the U.S. economy.
So are law firms, marketing companies, insurance providers and countless other enterprises that may seem insulated from the more direct body blows of an outbreak that has triggered the shutdown of public gathering spots across the country.
The vast majority of those affected are small businesses that lack the cash or credit lines that can prop up airlines and other large corporations for many months before they have to slash jobs. Firms with fewer than 500 employees make up 47% of private sector payrolls, according to the Small Business and Entrepreneurship Council.
To be sure, restaurants, hotels, hair salons, stores and other consumer service providers are on the front lines of the economic meltdown as they lose the bulk of their sales, forcing them to abruptly lay off most or all employees. But those developments have reverberated across the economy in recent days, hammering the revenue of professional service businesses that sell to those restaurants and movie theaters, and creating a cloud of uncertainty that has chilled U.S. commerce broadly.
“What’s happening is uncertainty is causing everybody to buckle down and stop spending money,” says Jessica Fialkovich, president of a western branch of Transworld Business Advisors, a broker for small business mergers. “It’s really bad.”
Many of the professional service businesses are still earning revenue, with most avoiding layoffs so far and others slashing only a portion of their staffs. But Fialkovich estimates that about 40% of small firms overall are shedding employees. The job cuts are compounding the toll that the restaurant, recreation and retail layoffs are taking on the economy. Three to four million jobs already have been eliminated and another nine to 11 million are “at significant risk,” estimates Mark Zandi, chief economist of Moody’s Analytics.
“The economic fallout is spreading quickly,” he says.
Goldman Sachs predicts the economy will contract by an annual rate of 24% in the second quarter while JPMorgan Chase forecasts a 14% decline in output.
Who needs business cards?
Sales have plunged 80% at My Metal Business Cards — which also makes metal membership, VIP and discount cards, says Craig Martyn, CEO of the La Habra, California-based company. While about 20% of his revenue is from trade shows and other events now canceled, Martyn says the impact on his business wide-ranging.
“I feel like everybody right now is so fearful,” he says. “People are sitting on their hands and saying, ‘I don’t want to spend money on something I don’t need to have.’”
Martyn has laid off eight of his 10 employees, including graphics design, product development and shipping specialists. Martyn himself is loading boxes and etching names onto business cards.
Professional service firms enjoy a distinct advantage. Their white-collar employees typically can work from home and may rarely interact with customers. But many of the workers are highly skilled and tougher to replace. And it can take longer for the businesses to replenish their lost sales than the corner restaurant or nail salon.
Many firms are racing against the clock to secure Small Business Administration-backed loans so they can keep the lights on. The typical small business has 30 to 60 days of cash in reserve, Fialkovich says. Meanwhile, it can take weeks to months to obtain an SBA loan, says Ami Kassar, CEO of MultiFunding, a loan adviser for small businesses.
“The question is — how quickly will it come and will it be on time?” Kassar says.
A nearly $2 trillion stimulus package that has bogged down in the Senate includes $350 billion in SBA-guaranteed loans. The legislation would allow the firms to not repay back the loans if they retain their staffs, but many businesses already have laid off workers. The Small Business Majority, an advocacy group, is calling for at least $250 billion in grants.
“Anything short of this will slow recovery efforts, fail America’s small businesses and their employees, and represent an abdication of duty in supporting those who need our help most right now,” says John Arensmeyer, CEO of the Small Business Majority.
At eAlchemy, a business intelligence firm that helps companies analyze their data to improve sales, revenue has tumbled about 65% as consumer product, electronics, technology and other companies have shelved projects, says CEO Chris Farkas.
“One minute they’re asking us to do more work and the next they’re halting all work,” Farkas says. “People are acting swiftly and going deep because everybody has a lot at stake.”
That has forced Farkas to lay off four of the eight employees at the Petaluma, California-based company, including software developers and advertising support workers.
“Nobody knows how long this is going to last,” he says. “If we knew this was going to be three to four weeks, many of us could just pay our employees to stay home.”
Farkas says he’s considering an SBA loan but adds that he’s “reluctant to take on debt if this is going to last so long that my business won’t even survive.”
Even if the crisis is over in weeks, Farkas says, “How long is it before my clients get back to regular business” as they determine, “What’s the new normal?… It’s going to take another six weeks to figure that out.”
Advertising and marketing firms are also hurting. Creative Noggin, a marketing company in Boeme, Texas, has seen revenue slide 20% to 30% as clients pull the plug on projects, says CEO Tracy Marlowe. One that does cosmetic surgery is seeing its business dry up as Americans focus on more urgent health matters.
Plus, she says, “People don’t want to see advertising messages” now. Rather than lay off any of her 14 employees, Marlowe has trimmed salaries across the board by 20% to 30% but says layoffs will likely be necessary if the crisis persists for months.
The insurance industry seems recession-proof. But Barry Sanders, owner of Knight Insurance of Broward in Cooper City, Florida, says revenue has fallen 25% as nervous Americans pull back on home purchases. Some may simply be going without home or car insurance.
“Insurance is no longer a priority,” he says. “People are trying to squirrel money away” for necessities. Although he hasn’t laid off any of his four employees, he says he can hold off on that for only another couple of weeks if conditions don’t improve.
Some small businesses are dodging layoffs by pivoting to new products or services they hope can bear fruit in these dark times. Rented.com of Decatur, Georgia, which provides consulting and technology services to vacation rental management companies, has seen revenue fall 50%, partly because it has cut prices sharply until June, says CEO Andrew McConnell.
So McConnell, a former management consultant, is offering emergency planning services, as well as long-term rentals, among other services, already securing clients for each new offering.
“We are building around what our clients need right now,” Connell says, noting he hasn’t cut any of his 16 employees.
At The Hire Talent, a recruiting firm in Brea, California, that specializes in architectural, engineering and construction professionals, revenue has plummeted 75% as businesses put building projects on hold, says CEO Fletcher Wimbush. He has deferred laying off his eight employees — recruiters, a data scientist and marketing manager — noting it takes about a year for each to become productive and profitable.
He has tentatively snared a $350,000 SBA loan that he figures should pay the rent and keep the business running another three or four months even if all sales evaporate.
Meanwhile, Wimbush is trying to diversify his staffing services to include plumbers – everyone is home, right? – and a tax specialist. And his firm is providing marketing for a recruiting client that buys distressed assets. If his business collapses, he figures he and his eight employees can work for the distressed asset company.
“I can repurpose my workforce,” he says. “That’s my plan D.”