Alignable: Road to Recovery Report (July 2021)

Small Business Recovery Updates: Customers Return To Main Street

· Revenue Levels Build As Customers Return

· Inflation Impacts Cash Generation

· Hiring Remains a Challenge

· Times Are Much Better For Some

· Though Struggles Continue For Many

Table of Contents:

• COVID’s Current Impact on Small Business Recovery
• Reopening Status
• Customers and Revenue
• Operating and Employee Costs
• Alignable Research Center and Poll Demographics
  

Overview

This month’s report, unless otherwise noted, features June 2021 data collected among 5,911 business owners from 7/2/21 to 7/19/21, and historical data from over 635,000 poll responses collected since March 2020, as we’ve mapped the Coronavirus impact on the Small Business Economy across the United States and Canada.

For more details about any of these findings, including the methodology behind our polls, please contact Chuck Casto at chuck@alignable.com.

CORONAVIRUS IMPACT LEVEL IMPROVES 

• Significant Negative Impact Felt By Less Than 25%
• 61% Report No Impact or That It’s Declining or Over

COVID’s significant financial impact on the small business economy saw another month of significant decline with less than 22% of businesses reporting Significant Impact, which was down 27% since last month. If you’ve been tracking these reports since last year, you know that shift is truly remarkable and very promising. Let’s hope we keep going in that direction.

Here’s how the distribution of impact across the current small business landscape plays out, compared to what 635,000+ SMBs told us over the past 16 months.

What we’re looking for is an ongoing and continued shift to the right – and the overall trends here are super encouraging.

Looking at June in isolation, you can see how the percentage of those experiencing the most significant Coronavirus financial impact has dropped down below 25%, as many of those business owners are now in the segment seeing the impact either in decline (28%) or over (7%).

When breaking down the results by US vs. Canada once again, we can see how fortunate the US has been to have early and ubiquitous access to COVID vaccines. That’s especially true when you’re considering the recovery of the most significantly impacted businesses, which depend heavily on revenues from summer traffic for survival. The chart below highlights once again how Canada is lagging behind the US in terms of its overall recovery.

One question we’ve all been asking ourselves for a few months now is: When will we see a significant lessening in the financial impact being felt by small business owners?

Last month, we wondered if we would start to see signs of a real recovery in terms of customers and revenues returning.

And, as you will see below, we’re happy to report that this process has begun in earnest, though many small businesses still have a long way to go. We asked business owners when they were anticipating a return to pre-COVID levels and what we heard revealed a fresh wave of optimism.

At present, 33% of small businesses reported revenues at or above pre-COVID levels already.

Roughly 60% of businesses anticipate being at that level by the end of 2021, and that number climbs to 77% by the middle of 2022.

Even better, 88% expect to return to pre-COVID revenue levels by the end of 2022.

However, it’s important to note that 7% of the 4,302 business owners who responded to this question stated they don’t believe their revenue levels will ever return to pre-pandemic levels.

Here are several direct quotes from the polltakers showing both increasing optimism, as well as ongoing struggles.

“Business has really picked up.”

“I’ve been building my business throughout the pandemic! I’ve had 2 books published and a third is on the way. I’m about to kick things off with that one! There’s no reason not to build on my success now.”

“My business has grown, and, in fact, continues to grow now.”

“We’re really ramping up now, doing even better than we did before COVID.”

“Because of a lack of staff, we've had to reduce hours and cut our menu severely. So we’re not bouncing back as quickly as we could. Many other restaurants are in the same boat.”

“My business is in the entertainment industry, and there are currently no opportunities.”

“My business is open, but with limited services. Sure wish there was more help available for minority-owned businesses.”

“If the cruise ship industry ever comes back fully, my business will, too.”

“Sadly, I had to close my business for good.”

SMALL BUSINESS RECOVERY STATUS UPDATE: REOPENING  

• 76% Of Businesses Now Say They’re Fully Open
• Temporarily Closed Businesses Are Down To Just 5%

Reopening statistics from this past month hit an all-time high since the COVID crisis began with 76% of businesses reporting they are now fully open. 

And the businesses that are temporarily closed (with plans to reopen) dropped to an all-time low of 5%.

Here are a few stories that illustrate the ups (and downs) of reopening. Several are more upbeat than usual, and reflect times changing for the better.

However, the struggle remains very real for others, who still require our support.

“We are looking to expand and start hiring soon.”

“I’m starting to have classes and individual, in-person clients again.”

“Our boutique is very busy upon reopening and we hope this momentum continues for the rest of the year.”

“I’m an artist. COVID shut down all galleries and all commissions in progress. Business went from flourishing and barely keeping up to nothing but online exhibitions with no sales. Commissions returned last November and are flourishing now. And galleries are starting to reopen, but have yet to yield any sales.”

“My travel company is seeing a slow recovery process, but we continue to be hopeful that things will pick up.”

“Our music programs are still severely hampered by restrictions on our group classes. The numbers we are likely to be allowed in a room make the classes difficult to finance for us. They might not really be worth the effort!”

“We need to find more funding for restaurants. We took a hard hit over the last 16 months and we are still having one heck of a time.”

CUSTOMERS & REVENUE 

Customers

Last month, we were pretty vocal about how real small business recovery would commence when we saw a meaningful shift in customer behavior and spending. While we had seen the potential growing, as more businesses shifted to fully reopening, we were holding our breath to see if this month’s survey results started to show a real recovery in action. 

This month didn’t disappoint in that regard, as the statistics around customers and revenue showed their first real, meaningful shift in the right direction in months. 

Here’s the customer level chart: 

What we were looking to see was an across-the-board shift in percentages moving from the left side of this chart toward the right indicating customers returning to businesses.  

The far right grouping is indicative of the percentage of businesses operating back at pre-COVID levels. While super encouraging, it’s important to note that 40% of businesses are still experiencing less than 50% of their pre-COVID customer levels. 

To get a feeling for the level of optimism towards ongoing improvement, we asked members to share where they think they will be in 30 days.  As you can see below, business owners are anticipating the current trend to continue. Let’s hope those predictions actually occur.

Revenue

Here’s the chart showing the revenue levels throughout the pandemic, and once again, this past month showed remarkable improvement over May.

Significant headway has been made in the lowest two segments and the highest segment, which reached its highest level since the crisis began in March 2020. 

As we mentioned earlier, we asked when small business owners anticipated revenues returning to pre-COVID levels, and not surprisingly the outlook is very similar to the customer outlook chart with 60% of businesses anticipating reaching pre-COVID levels by the end of 2021. 

One of the points we’ve been making along the way is not only the close tie between customers and revenues returning, but also how revenue increases tend to lag behind customer numbers. It’s really nothing more than an interesting observation about consumer spending and how it builds over time rather than coming back immediately at pre-crisis levels. 

To say these trends are uplifting compared to last month is an understatement. June’s report showed that 57% of all small businesses polled said their revenue levels are half or less of what they earned before COVID. And this month, that number has dropped 15 percentage points to 42%.

And while that’s tremendous news, it’s still important to note that full recovery remains elusive for 67% of small businesses at this point.

Quotes from polltakers this month indicate a greater sense of hope.  However, there’s a long road ahead for many and frustrations continue to loom large.

“We have a small resort motel in Florida. This past year has shown more and more local people wanting to get out of the house and enjoy the Gulf of Mexico’s beaches. We have been blessed by good weather and increased local interest, giving us a lot of new customers. Our regular customer base is from the Northeast where pandemic concerns have still been strong, but some of those base customers plan to return in the fall now, too.”

“I’m a piano entertainer at senior living facilities. I’m back to regular playing at one facility and more sporadic playing at several others. I wear a mask before and after.  These facilities are uber-careful when I enter, and they still practice social distancing.”

“Our 46-year-old business has suffered the side effects of COVID. The shutdowns have resulted in a 60% decline in sales and an 80% decline in profits. Recovery has been very slow, and I doubt if sales will ever totally return to previous levels. If I had not been debt-free, I doubt I could have survived. And some of my previous clients have not recovered enough to be able to order the T-shirts, mugs or other marketing items we supply.”

“Self-employed proprietors and consultants like me never received a dime from the SBA, or PPP in 2020 and 2021, despite the President’s new grants. Local cities and counties did NOT do enough to give us a little break, an extension or tax relief. We deserve the MOST help, before the big corporations and rich employers are paid. It’s sad that equity is served unfairly.”

Inflation Hampers Cash Generation 

At its height, the COVID crisis impacted over 90% of all small businesses.

Certain industries and economic sectors sustained the greatest and most prolonged impact lasting well over a year. 

Clearly, it’s going to take time for these businesses to regain their financial standing and be well positioned to weather future economic challenges. 

Core to their recovery is their ability to generate cash flow. While returning revenues help fill the top of the funnel, there are factors at work which are reducing overall operating margins (or cash available to pay off bills accumulated over the past 16 months). 

The three rather volatile areas we’re keeping an eye on are:

• The cost of supplies and inventory
• The ability for businesses to pass along increased costs to customers
• The cost and availability of labor

Cost of Supplies & Inventory

It’s well known that the supply chain for many industries was significantly affected by the COVID Crisis. From automobiles to toilet paper, relatively few businesses depending on physical goods made it through the crisis unscathed. 

The net result of these disruptions can be seen in how the prices have changed since pre-COVID levels:

Clearly, price inflation is a broad-reaching concern, with 80% of businesses experiencing higher supply and inventory costs and 27% experiencing increases in excess of 25%. 

Unless businesses are able to pass along higher costs to their customers or disfunction in the supply chain is remedied quickly (driving costs back down to their pre-COVID levels), recovery will take longer.

As a result we might see higher levels of business failures over the coming year or two. 

Passing Costs Along To Customers

Inflation has the potential to significantly reduce operating margins (cash generation) for businesses that are unable to pass through higher costs to their customers by increasing the prices they charge. 

The ability to pass through costs is highly dependent on the competitive marketplace for the goods or services you provide. In competitive markets, many small businesses resist increasing prices, because they’re fearful that customers will simply shift to a competitor with lower prices and the business will be lost. 

The current economic climate, where businesses are trying to reconstruct their customer base and build back their book of business, makes it even more critical to avoid any actions that would shift customer purchasing to a competitor. 

One can see the disparity by simply comparing the supply cost chart to this chart, which highlights how businesses have adjusted their pricing in comparison to pre-COVID levels.

For example, while 27% of businesses have seen their prices increase by 25% or more, only 7% have been able to raise their prices to the same extent. 

Polltakers had a lot to say about inflation and how much of a challenge it presents for their recovery. In fact, as concerns about COVID have lessened, fears about the impact of inflation have continued to rise.

“The cost of materials has risen over 600% in the construction industry. It's killing my profit and it’s about ready to cause me to close my doors permanently. This is a terrible thing that's happened, and I'm not happy about it.”

“Inflation is already causing my clients to spend less with me, so how can I raise prices to make up for my expenses? The answer is, I can’t. At least not yet.”

“Inflation is killing us all. The country opened back up to the Upper Middle Class & above.”

‘I have an organizing business and inflation is holding some of my clients back from hiring me. Instead, they’re paying other folks to haul away the junk they accumulated in 2020.”

“We are in the events business, setting up concerts, festivals, and political rallies.  We lost all contracts on 3/11/2020 due to COVID.  However, now the business is SLOWLY coming back, but the promoters aren’t paying top dollar, while equipment prices keep going up. We can’t change our pricing, because our major competitors are huge companies with their own equipment, so they keep low balling their estimates.”

“Although the pandemic has increased revenue for my company, as a Real Estate professional for 20+ years, it concerns me that greed is being orchestrated by other RE professionals, who are encouraging their sellers to gouge listing prices. This type of practice is damaging to the core of traditional home ownership and if things keep going the way they are, I’m afraid the real estate business will crash again as it did in 2008. People need to keep prices closer to their appraised values.”

Employee Costs

For many of the hardest hit sectors (restaurants, hospitality, and retail, among others) labor expenses represent a significant investment in both time and money.  These two charts highlight the current situation with regard to both components.

Hiring well takes a good amount of time and effort, and currently, 27% of businesses are finding it significantly more difficult to fill open positions on a timely basis.

Looking closely at a few of the most affected industries, 74% of restaurant owners say it’s still more difficult to find help than it was prior to COVID. Others echoing those sentiments were 66% of small business owners in transportation, 63% in the automotive industry, 62% in manufacturing, 59% in the beauty industry, 56% in construction, and 47% of retailers.

And for those fortunate enough to fill open positions, 44% are having to pay higher compensation to employees. 

Regardless of one’s position on hourly wages, the take away is that higher costs are going to result in a prolonged recovery period. And some small business owners don’t have the luxury to wait until these issues are resolved.

Here are some final, sobering words about rising costs and hiring issues from our polltakers:

“We have business coming into our Home Healthcare company, but there are many obstacles. Caregivers would rather collect unemployment than work. And now many of our clients are requiring caregivers to be vaccinated. But we can’t make them do it. It’s their choice.”

“Our renewable energy business has grown substantially since the beginning of the COVID pandemic and it’s still growing. However, finding qualified people willing to work here in Canada is somewhat of a challenge.”

“I do not believe the Canadian COVID Recovery handouts are really helping a lot of people. We’ve been advertising for laborers to help with our pool business since late winter. Though we interviewed and hired seven applicants, none of them actually showed up on their start date. The government cash handout has removed any desire to work in many of our younger generations. Why work when they can stay home and get paid? I’m concerned we’re creating a welfare society of lazy people.”

“In the construction business, the inflated cost of goods has hurt us more this past month, than COVID did when it was at its worst. It’s time to eliminate unemployment benefits and get people back to work.”

“Last year, our candy shop had a good year for only being in business a few months prior to COVID. But this year, our sales have gone from $6,700 to $807 per month. We’re concerned that, with the rising cost of supplies and a lack of customers, we will not survive.”

Despite The Challenges, Let’s Accentuate The Positive

While inflationary trends and labor shortages continue to be daunting for many industries, we wanted to end this report on a more positive, inspiring note. Just look at this quote from someone who straddles two industries that were devastated by COVID: travel and event planning.

“Starting Q1 of this year through Q2, my business has been thriving in the travel industry and through speaking engagements. It started to pick up back in Oct.-Nov. 2020 and hasn’t slowed down yet.”

This is proof that no matter how bad your situation seems, there’s always hope as long as you just don’t give up.

To see other polls we’ve conducted since March 2020, please go to the Alignable Research Center.

ABOUT THE ALIGNABLE RESEARCH CENTER 

Alignable is the largest online referral network for small businesses with over 6.5 million members across North America. 

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members.

For more details about any of these findings, please contact Chuck Casto at chuck@alignable.com.