Six of seven Michigan small businesses don’t expect to regain lost sales

Michigan’s small business owners say they are prepared to reopen and prevent the spread of COVID-19. But their confidence falters when they consider what the pandemic means to their futures.

A new survey by the Small Business Association of Michigan released Thursday shows 1 in 7 small business owners remain concerned they won’t survive the pandemic.

One reason, according to the survey: expected sales drops, even as many businesses are allowed to reopen following stay-at-home orders in March from Gov. Gretchen Whitmer that closed non-essential businesses.

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Now 6 in 7 small businesses say sales declines are their biggest concern, and 60 percent of them expect drops of 25 percent or more.

The impact of that will be felt across Michigan’s economy, said Brian Calley, president of the Small Business Association of Michigan and the state’s former lieutenant governor.

“It’s one thing for these businesses to lose this level of sales, but there’s also quite a ripple impact that this has, because it’s a whole ecosystem,” Calley said, referring to a range of support-type businesses such as  accounting, suppliers and legal services.

One example is the state’s restaurant industry, Calley said, as it opens statewide on Monday at reduced capacity.

“Think of all the different businesses that do business with restaurants. You have advertising, marketing, food distributors, and a lot of times they’re tenants in somebody else’s real estate,” Calley said. 

“There’s an impact across the board when you see a dramatic sales decline.”

The survey questions were posed to 568 owners, the majority in professional services (36 percent), manufacturing (15 percent) and retail (12 percent). It was conducted between May 26 and June 2, after some portions of the state opened for Memorial Day weekend and as others saw limited openings allowed. About two-thirds of the respondents have 14 employees or fewer.

The survey found 43 percent support Whitmer’s handling of COVID-19 and 62 percent support President Donald Trump’s handling of it.

The difference, Calley said, is likely that national support of reopening came at a faster pace. Many business owners say they’re ready to reopen safely, he said. 

“The vast majority of small businesses feel they’re ready and confident they can do it,” Calley said.

The survey followed one by the small business group in early May, when business owners also said about 1 in 7 worried about their long-term survival. The more recent survey expanded questioning to include sales expectations, reopening preparations and questions about how owners view government response to the pandemic.

“Business owners were no more pessimistic this time,” Calley said. “But at the same time, you can tell from these results, they’re expecting it will be very difficult.”

One thing the survey supports are anecdotes shared by business owners that suggest an uneven recovery. 

Best-positioned businesses will have low overhead costs that can adapt to a decline in cash flow, Calley said. Those will tend to be more mature businesses, leaving newer ones more vulnerable. More established businesses are absorbing losses as they have to determine new directions for their operations.

“You build a business on a certain base of expectations. There are many businesses that are back to a point where they’re almost in startup mode,” Calley said. “The base of their businesses has shrunk and they have to start building it back.”

Most of the businesses (80 percent) applied for the federal Paycheck Protection Program, with just a handful of applicants not yet receiving the federal loan money that can be converted to a grant as businesses comply with CARES Act guidelines to keep employees on payrolls.

About one-third of respondents said compliance with preventing pandemic spread is among their most pressing issues. However, most of the businesses surveyed said they have enough personal protective equipment for their staff (81 percent) and have COVID-19 preparedness plans ready (63 percent). Ninety percent say they’re capable of protective practices.

Yet only half believe it’s appropriate for regulators to require their businesses to perform health checks on employees or for regulators to require PPE.

The next SBAM survey will take place after the next round of business reopenings, Calley said, which are estimated in early July. While he’s concerned about the level of concern among Michigan’s small businesses about their viability, he also said he sees them adapting to market conditions and “giving themselves the best shot at survival.

“One in seven is a catastrophic rate [for business failures],” Calley said. “We can’t let it turn out that way.”