How’s Your Small Business Going Lately?

What do you do when your business is forcibly shut down from one week to the next, as has happened to first every bar and restaurant owner, and then every other so-called “non-essential” business?

I gathered anecdotal data from Bryan Potts, a San Antonio-based CPA and the owner of CFO2Go, who primarily serves restaurants with consulting and accounting services. It’s been rough. Potts says he lost 75% of his client base in March. 

With doors forcibly shut, many of his clients simply can’t pay him. Of his restaurant clients, Potts estimates that 10% are hanging on to their employees in the shutdown, while 40% have cut back as much as possible to just a few essential employees. About 50% of his clients have simply laid off all of their employees.

CFO2GO

To begin to get a sense for the scale of the hit to employment numbers this month: The Texas Restaurant Association counts 50,000 restaurants in the state, and counts 1.4 million Texans in the restaurant industry.

In a related story, US weekly jobless claims have hit catastrophic levels every week since late March.

Back in the good old days, in December 2019 – which feels like a decade and a half ago – I sat down with Ryan Salts of the small-business resource center Launch SA.

Salts’ passion and profession is to support entrepreneurs and would-be entrepreneurs as they launch, survive, and then hopefully thrive as business owners. 

This Spring, however, is not at all like the good old days. Salts invited me to listen in, as he gathered together entrepreneurs online on Zoom in a part advice-giving session, part therapy session. Potts was not on this call, although he is part of Salts’ mentoring network. 

A different mentor on the call – who asked not be named – described the process of filing with the Texas Workforce Commission for a “full company” claim of unemployment. This would streamline the process for her employees, all of whom she assumed would need to apply for unemployment benefits. 

A question among the group arose: Is it time – as the classic entrepreneurial wisdom says – to “pivot” your business model? Not necessarily.

Many restaurant owners, for example, have opened up grocery stores, or boosted their take-out and delivery businesses. Customers want this and encourage this, and employees may feel grateful for the ongoing work. But this could be – in fact it probably is – a money loser for restaurant owners. And the result of operating a money-losing pivot over the next few months could be further debt for the owner down the line when normalcy returns.

One of the Zoom participants was Jeni Spring, from The Center For Barefoot Massage. She said a widely suggested pivot runs counter to her business. She runs a San Antonio-based continuing education center to train massage therapists in deep tissue technique. In this lockdown, she’s received advice and pressure to move to an online training model for massage therapists nationwide. But that, fundamentally, is not something she believes in. 

barefoot_massage
I hadn’t ever heard of them either!

“We can’t become something we are not. It doesn’t work to move to online training, since our entire reason for being is that you have to learn massage in person. You simply can’t learn the sense of touch needed to give professional massages online.” 

So, the “pivot” is a mixed bag.

What about the other solutions business owners bandied about following the lockdown – such as offering gift cards, as a kind of down-payment on future business that would help finance the present? 

Salts offered a cautionary tale.

“I have a downtown friend. He won’t make it through this. His normal traffic is foot traffic. of the first things I thought last week was “’why don’t you do gift cards?’” 

“But everything is changing so fast that recommendations from earlier in the week change day to day.” His friend didn’t feel gift cards were ethical, Salts explained, “given that he was of the mindset that he had a 70% chance of not surviving the downturn.” 

In December, Salts and I had talked about how hard it is, even in the best of times, for food service businesses to survive. I was curious about a spate of high profile restaurant closures in my neighborhood at the end of last year. 

Salts was philosophical and realistic, based on his work with Launch SA: “Are food people good business people? On average? No,” he’d said then. “They’re really good at what they do. They’re creative. They can put together a good menu. But can they run their accounting? Can they cost things out?” That was December.

Now, of course, none of that matters. The best restaurant owner in the world cannot stay open against the COVID-19 lockdown orders.

About the restaurant businesses now shuttered, Salts has an extremely dire prediction. 

lift_fund

“Probably 50% of the places that close their doors right now are not going to reopen when this thing is over. Every single person I work with is in a dire situation of triage.”

And with those shut-downs, we are learning, painfully, how essential these small businesses are. Everything is interconnected. As Potts explained: “It shows how far small business employers contribute to the economy. It’s everything from people who clean out the grease traps to lawyers and accountants. I don’t think there’s anybody that’s not been affected by restaurants shutting down.”

Disclosure: I do occasional consulting projects for the non-profit small business lender LiftFund, which partners with the City of San Antonio to run Launch SA.

A version of this post ran in the San Antonio Express-News.

Please see related post:

The Entrepreneurial Mindset

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Interview Part I: Greek Businessman on the Government’s Bloat, and A Solution

Please click above to listen to full interview.

Part I – This conversation is not with a banker in recovery, but rather an old friend of mine named Mihalis who comes from a prominent Greek family.  Greek finance is the tail currently wagging the European dog, and Mihalis is one of the most insightful people I know.  I figured he could explain what’s going on.  I started by asking him about recent Greek Parliamentary elections.

Mihalis: Maybe it’s my personal bias but you know Parliament the way it works it’s really like the HR department of Greece Incorporated.

Mike: The HR department employs as many people as possible?

Mihalis: Yes, its votes in exchange for jobs and that’s the root of the problem.

Mike: you are saying the Greek Parliament is an HR system essentially for the country.

Mihalis: Yeah the whole public finance was used to give salaries to people.  If you looked at the workforce of Greece, basically you have 1 million employees directly or indirectly dependent on the state. You have 1 million self-employed people and 1 million people who work in companies as employees.  In Greece you have about 800,000 companies, so the average FTE – you know full-time equivalent – is something like 2 1/2. In Europe or America that’s like 100.

So essentially out of these 3 million you now about 1 million unemployed.  So the situation is really, really bad.

MIHALIS BEGAN TO EXPLAIN TO ME THE CORRUPTION AND BLOAT OF THE GREEK GOVERNMENT, AND THE  UNHOLY ALLIANCE BETWEEN POLITICIANS AND THEIR BANKING ENABLERS, AND THE CAPTURE OF THE POLITICAL SYSTEM BY BANKERS.

Mihalis: Half of the people… You know, you walk into a government building and you see half of the officials, they are honest people, they would like to work, they have some ideals they have some skills. But, they are completely demoralized, by the other half, which are jaded lazy, they bought their position because of a vote, and they pollute the whole system.  So, you can’t easily distinguish the two, so you’ve got to let a little bit of the forces to weed out the good from the bad.  And the only way to do that is to reset it.  They been trying to cut down the state, no one has really wanted to do it so they haven’t succeeded.  All they did was to displease the people.  Because they lowered their salaries, they’ve cut their benefits.  They started saving, doing a little bit more oversight on things. But all they’ve ended up doing is creating an even higher resistance to change.

Mihalis: The voters suddenly said well…So long.  We’re not going to vote for you anymore.  We’re going to vote for somebody who promises us even more jobs. The guy promised 100,000 more jobs after the election if he wins the election.  Crazy.  Right now the Greek government could function with 100,000 people. And it has 800,000 people.

In many ways, you know you have a few bankers, mostly of Greek origin, in the Greek desks of the big banks in Europe, maybe about 100 people, and they were just lending money to corrupt politicians. For nothing, just to cover up the problems of every year’s budget.  And this happened for like 15 years in a row at least. And then you had a collusion, with the politicians that want to appear you know with numbers that are smooth, attractive, and you start lying with statistics and blah blah blah and again Greece in the periphery was not a problem to worry about it was too small.  And that’s a recipe for disaster.

It’s a matter of popularity yes, in order to be a politician you need to be popular.  To be a good politician you need to actually make some wise decisions.  The problem is today politicians are neither wise nor make decisions.  They’re sort of dragged along by bankers.  The banking system is the backbone of the world, and they’re driving political decisions today. And it’s sort of putting the carriage before the horse, in many ways.

Mike: as an ex-banker myself I always, well, one main motto “Follow the money.”  Or if you’re wondering why the politicians are doing certain things, it’s generally wise to figure out what are the bankers asking them to do. It’s a good rule to follow. Wondering why people are acting like they’re acting, I find.

I ENJOYED HEARING MIHALIS, WHO I KNEW TO BE A PROGRESSIVE, LEFT-OF-CENTER GUY, SOUND LIKE WHAT WOULD BE IN THE AMERICAN CONTEXT A TEA-PARTY TYPE APPROACH –  RADICALLY SHRINKING WASTEFUL GOVERNMENT TO ONE EIGHTH OF ITS CURRENT SIZE.  I WANTED TO CHECK WHETHER HE HELD SIMILARLY RADICAL VIEWS ON THE IMPORTANCE OF ENTREPRENEURSHIP AND SMALL BUSINESS AND GETTING THE GOVERNMENT OUT OF THE WAY OF THE ENTREPRENEURIAL SPIRIT TO REVIVE THE GREEK ECONOMY.  IT TURNS OUT, IN A STRONG SENSE HE DOES.

Mihalis: You know, the Greek are realists.  With a built-in distrust for the state. Because the state treats you as a liar and as a thief and you treat the state back the same respect. You know I don’t respect you. I don’t expect that you give, that you will protect my wealth. I actually expect that you will take away my wealth because in Greece since the 1980s the whole notion of entrepreneurship has been demonized and we haven’t reached the point yet where we de-penalize entrepreneurs.

Mihalis: There was a model in the 1960s of entrepreneurs that were [taking advantage] of the laborers, and taking the money out, and not paying taxes. There were a few examples like this but they were ruined. This became one of the popular themes of the Socialist government that we don’t like business people, we don’t like capitalists. Because they keep all the wealth for themselves and keep everyone else unwealthy.  Again that was an abuse, that was Greek hyperbole. Deep down if you don’t have entrepreneurs you cannot have growth. And that has been part of the stifling of the Greek economy. Rather than boosting or helping entrepreneurs, it’s always there fighting against them. So you have then entrepreneurs fighting back. Evading taxes, trying to find any kind of way to protect themselves.

Because they know sooner or later that the state is going to go against them. Because it’s a small market as well, the scale is so small.  In the US if you’re an entrepreneur you have such a big market.  You don’t have to fight over the stakes.  Fighting is fierce when the stakes are low.  You fight over nonsense because there’s little to go around.

And we’re talking about the key problem.  Let the economy run. The Greeks can do very well in a very, very chaotic environment.  They don’t need a society. They don’t need the comfort of the state like the Germans do, or the Chinese do.  Greeks can survive no matter what. All you need to do is get the big state out of the way.  Because the Greeks were like, they chose the easy way.  The easy way which is o, the state can feed me and I can give my vote to it. And everything can’t be fine. But this doesn’t work and somebody has to publicly say that the people.  And if the money flow has to stop, it has to stop.

TO MY TEA PARTY FRIENDS WHO THINK AMERICAN FREEDOM UNIQUELY SUPPORTS AMERICAN ENTREPRENEURSHIP, MIHALIS SEES THAT GREEK ENTREPRENEURS HAVE A SIMILAR CULTURAL CALLING.

Mihalis: It’s a byproduct.  Freedom was born in Greece.  Greeks are free and I think that’s a byproduct.

MIHALIS AND I SPOKE EXTENSIVELY AFTER THIS ABOUT HIS OTHER SOLUTIONS TO THE GREEK CRISIS, EUROPEAN INTEGRATION, AS WELL AS THE ROLE HIS FATHER CURRENTLY PLAYS ON THE NATIONAL POLITICAL SCENE IN GREECE.  I’LL LEAVE THOSE FOR A FOLLOWUP PODCAST IN PART II.  IN THE MEANTIME, MIHALIS WOULD NOT LET ME PAINT HIM AS A RADICAL RIGHT WING GUY IN THE TEA PARTY MODE.

Mihalis: I mean you’re talking about an abuse of things. There’s been an abuse of the state.  Of the welfare state.  I’m definitely pro-welfare state, because I feel that the world is not perfect. The right wing guys are privileged, strong, they never had to suffer, and that’s why they see the world in their own eyes.  And the world is not like that. You need a welfare state.

There are ways and ways of funding it. In the Greek case it’s been abused.

In PART II of this conversation, Mihalis discusses further European integration, and his father’s role in Greek politics today.

 

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