COVID-19 and the ensuing economic fallout has shed light on an issue that didn’t just appear because of current events. In fact, it’s an issue that has been brewing in the business community and building a silent momentum for years. The events that unfolded after the pandemic hit our community simply pulled back the veil on an overlooked segment of the business world and our U.S. economy. The number of microbusinesses is outpacing the number of small businesses, but support is lacking and, as such, potentially stagnating a large segment of the economy.
Let’s start by understanding the definitions.
- What is a small business? Small businesses, as defined by the Small Business Administration (SBA), are not really small, at least by most standards. The SBA classifies your business as “small” if it has a range of 250 to maximum 1,500 employees as well as average annual receipts from $750K. Maximum revenue can go as high as several million, depending on the industry.
- What is a microbusiness? Microbusinesses have a different set of parameters as set out by the SBA. A microbusiness is defined as having less than ten full-time employee equivalents, and the average annual receipts range from $250K to millions depending on the industry.
The new “normal” paints a dire picture of the outlook for small and microbusinesses, even with the phased reopening of the economy in most U.S. states. Small and, especially microbusinesses, are concerned about recovering losses from the zero profitability period during the lockdown and dips in profits as the slow reopening begins. They also have to face backlogs of rent, re-employment challenges and added costs (in many cases) of protection their workforce and customers from germ spread. They also face the fear of another shutdown, should another spike in illness take place. Their cash flow reserves are depleted if not in the red. As we face the current state of affairs, it’s an important time to revisit a situation that I have been working to improve for some time now.
Drilling Down On The Plight Of Microbusinesses
So, how is this all a problem? The CARE ACT was put together in record time to help salvage the fallout small businesses were feeling due to the COVID-19 outbreak/shutdown. However, it has been widely and publicly criticized because 445 public companies disclosed they received $1.52 billion in small business loans. (It’s worth noting that to date, approximately $550 million of those funds have been returned.) Additionally, microbusinesses and small businesses owned by minorities have had much trouble obtaining the loans. Only one in ten minority-owned small businesses said they received the funding they requested, as reported in a nationwide survey from Color of Change and UnidosUS.
All of this is not good and, most likely, will be assessed on the back end of the crisis, but an issue existed long before COVID-19 set its sites on our society. Taking a wider view, it’s important to recognize how microbusinesses have much surpassed the presence of small businesses in our economy (as defined by the SBA) and how support needs to evolve as well.
Here are some of the tangible reasons to change course as microbusinesses are concerned:
- Microbusinesses have to compete with much larger small businesses for government and large corporate contracts.
- When funds are made available to the umbrella “small business” group, the larger, small businesses have better inroads with lenders allowing them to secure the bulk of capital to support growth while microbusinesses struggle and remain stagnant.
- The inability to scale limits the positive impact of the microbusiness on the economy. In fact, even though there are more than 3.8 microbusinesses in the US and growing, the number of employees they hire has been steadily decreasing.
What picture do the numbers tell? The criterion, as set forth by the Small Business Administration, does not sync with the actual breakdowns of smaller businesses in the state of Florida (to drill down even further). In fact, non-employer businesses outnumber those consider “Employers” by leaps and bounds. Consolidated Census information reports non-employers at 2,053,914 and employer business at 546, 218. And, the trends continue to increase that gap.
What’s the back story? The first legislative move was back in 2017 in Ohio, a bill that simply codified the definition of microbusiness – in this instance defining it was a business with twenty or fewer employees. Other states have followed suit, including MA, NY, NC, NJ and CA, although more work needs to be done.
Is there change afoot? As a business leader, a microbusiness owner and a service provider to many businesses that fit this description, this issue has grown near and dear to my heart. I have been working with others as a member of the NAWBO (National Association of Women Business Owners) to try to affect change in this area in the state of Florida. We have petitioned the FL government to recognize the plight of the microbusiness, how it differs from the classically-defined small business and how it is a driving force of the state’s economy.
Check out some interesting data about microbusinesses in FL and nationwide:
- In Florida, it is estimated that 84% of businesses have ten or fewer employees, and they employ 12.4% of the state’s workforce (from SBA and Census data).
- By creating a better definition and support system for these businesses, the state can help to, not only measure, but to facilitate the systems for growth of these businesses.
- It is estimated that nationally over 40% of microbusinesses are owned by women.
The truth is that ignoring this large segment of the business community has an impact not just on the solopreneur or the business with fewer than ten employees, it impacts the contractors that provide on-demand services, the freelancers that support business services as well as the manufacturers that provide materials. This impact, while hard to measure, is large and wide. I will continue to work on this issue and update you accordingly. In the meantime, I wish you all good health and prosperity as we navigate the “new normal” in light of the COVID-19 events.
Contact me with any questions!