Lessons From a Business Owner

The labor market in the United States has fallen at record speed and magnitude. In February, the unemployment rate was at just 3.5% and rose to 4.4% in March. Based upon initial claims for unemployment, it is estimated that the true unemployment rate may now be as high as 15%. However, according to JP Morgan, since the middle of March, temporary layoffs or furloughs increased by 1 million while permanent layoffs increased by only 177,000. This signals that many closed businesses plan to eventually reopen and rehire.

The CARES Act, which was the third stimulus package passed by the Federal Government and valued at over $2.2 trillion, will greatly impact individuals, small businesses and large corporations alike. One piece of the CARES Act aimed at providing $350 billion in small business loans is the Payroll Protection Program (PPP). This program offers small businesses forgivable loans of as much as 2.5 times monthly payroll up to $10 million, if the firm keeps its employees on the payroll. While stimulus such as the Payroll Protection Program may have come too late to prevent the massive initial wave of layoffs, it will aid companies that have been less directly affected—most likely companies outside of the travel and hospitality industries. The hope is that these loans can keep workers and businesses afloat long enough to experience a sharp employment rebound once social distancing measures ease. Lenders all over the country are scrambling to digest and execute on behalf of their small business customers in order to raise the prospects of a more rapid economic rebound. In the first 10 days of the Payroll Protection Program, banks approved an estimated $215 billion in small business loans. In an effort to help business customers in the communities we serve, Johnson Financial Group has begun to process and fund over $500 million in loans as of April 13, 2020.

This level of stimulus is unprecedented, but if we take a look back to previous recessions, how else did business owners navigate uncharted waters? We asked one Johnson Wealth client who recently sold his manufacturing business after running it for more than 20 years. He offered a few insights and several colorful analogies from his experiences weathering past downturns.

For this veteran business owner, the COVID-19 pandemic struck a sort of déjà vu as he remembered the fear within his community just prior to the Polio vaccine. He stood in line for blocks waiting for his first shot. When reflecting on the Great Recession beginning in 2007, his business made it through with a “shoulder to the wheel attitude.” As the economy tanked in 2007 and 2008, there were fewer fish in the pond so naturally he was forced to cast a wider net—sending out more brochures, increasing email marketing and making countless phone calls to current customers in order to “go to where the action may be” and “come up with a strategy and get moving.” He recalls during past recessions that he would monitor overhead carefully, get rid of things that he could live without and bring certain functions back in-house to reduce costs. Lastly, he always kept plenty of cash on hand because he never knew what was around the corner.

The good news, he says, is that we can forecast a rough recovery timeline in this situation, unlike many other past recessions. We know advances on the medical side will begin to signal confidence and will get the economy moving again. “If we take the steps to push sales and reduce operating cost, we can stay on the train and not be left at the station.”

The Payroll Protection Program is expected to burn through the first $350 billion by week end, and Congress is anticipated to approve an additional $250 billion in the near future. As a firm, we are continuously monitoring for economic stimulus like this and believe that it will provide a bridge to a U-shaped recovery towards the second half of this year. As for our retired business owner client, he is using his retirement to volunteer for a non-profit that mentors small business owners and provides wisdom that is needed now more than ever.

ABOUT THE AUTHOR

Kelsey Ellsworth

AVP Wealth Portfolio Manager | Johnson Financial Group

As Assistant Vice President, Wealth Portfolio Manager, Kelsey works with clients to achieve their unique goals and objectives.